European People’s Party proposes two-year delay for CBAM

The European People’s Party (EPP) said the EU should put the Carbon Border Adjustment Mechanism, taxonomy regulation and corporate sustainability directives on hold for at least two years and review them.

The strongest group in the European Parliament outlined an initiative to reverse deindustrialization and tackle “the bleak outlook for the European economy.” Streamlining regulations – the basis of the EPP’s comprehensive proposal – would however come at the expense of decarbonization efforts, especially in energy, and even business ethics.

The paper, aimed at bolstering competitiveness, was published right ahead of United States President Donald Trump’s inauguration and immediate U-turn in his country’s climate legislation.

“The corporate sustainability legislation, such as the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD) are proving to be excessive and burdensome, with immense trickle-down effects for European SMEs. The implementation of the CSRD and the CSDDD, as well as related legislation including the taxonomy regulation and the Carbon Border Adjustment Mechanism (CBAM) should be put on hold for at least two years,” EPP said after its leaders met in Berlin.

Notably, European Commission President Ursula von der Leyen is one of them. EPP has 188 seats out of the European Parliament’s 720 lawmakers.

CBAM entanglement requires scrutiny

An omnibus regulation proposal is due by the end of February. The package needs to limit the scope of the laws in question to companies with more than 1,000 employees, eliminate the indirect effect on small and medium-sized enterprises, eliminate double reporting requirements and reduce the reporting obligations for large companies by at least 50%, the European People’s Party said.

It added the EU must scrutinize the CBAM carbon border tax scheme’s effects on red tape and the competitiveness of the different sectors.

The mechanism, currently in a transitional phase, is due to be phased in from January next year, when payments start, until the end of 2033. At the same time, the EU would gradually cut the number of the free EUA carbon allowances that it allocates to domestic energy-intensive industries within the EU Emissions Trading System or EU ETS.

Businesses affected by CBAM are struggling to cope with legal requirements

CBAM will be a tax on carbon dioxide emissions for foreign cement, iron and steel, aluminum, fertilizers, hydrogen and electricity. The administration in Brussels introduced it to protect its economy from imports from third countries with less stringent or no carbon pricing.

The regulations for the originally envisaged system aren’t complete. Moreover, the EU is expanding the scope along the way.

The scheme will also cover indirect emissions related to electricity consumption for cement, fertilizers and electricity. The EU intends to include downstream, manufactured products.

The Western Balkans and the rest of the Energy Community would welcome a two-year delay. They are way behind on carbon pricing and fulfilling the conditions for exemptions for electricity. But both EU importers and foreign producers of the designated raw materials and products are struggling to meet the legal requirements – particularly for reporting. Critics say CBAM would lift input prices for businesses.

EPP blames red tape for productivity lag behind US, China

The European People’s Party highlighted the European Union’s target to slash business reporting obligations by 25%, but 35% for small and medium-sized enterprises.

“But we need to go further and be even more bold because excessive regulation and bureaucracy has today become a key reason for the EU’s productivity falling further behind the US and China,” according to the paper.

The gap between the US and the EU in gross domestic product widened from 17% in 2002 to 30% in 2023, EPP said.

Renewables target isn’t necessary for decarbonization

EU ETS is a simple and efficient market-based system to incentivize more efficiency and reduce carbon emissions, the European conservatives argued.

“It is delivering. There is, however, no need for additional excessive regulation such as a renovation obligation for homeowners. Neither are we in favour of a separate target for the share of renewable energy – it should be the competence of member states to decide with which technologies they want to achieve the climate targets,” they said.

In response to high energy prices, the EU should earmark a larger share of ETS revenues to energy-intensive industries, for example for supporting green hydrogen or carbon capture and storage (CCS) solutions, the paper adds.

A technology-neutral approach is necessary to assess all available energy solutions, EPP’s leaders said

“The availability of affordable and dispatchable energy is a crucial precondition for growth and jobs. Today, EU companies face electricity prices that are two to three times higher than in the US while natural gas prices are four to five times higher. Therefore, we need to leverage all available energy solutions through a technology-neutral approach that includes renewables, nuclear, hydrogen, bioenergy and carbon capture, utilization and storage,” party heads said in the document.

The abolishment of the renewables share target would enable EU member states to choose on their own how to reach emissions goals.

If climate policy becomes an obstacle for competitiveness and growth, it will not only fail to have the support of European citizens, but it will also risk increasing global emissions because products will be produced in other regions of the world with higher emissions, EPP stressed. In addition, it praised the European Commision’s Clean Industrial Deal initiative and called for specific measures for the automotive sector.

Mitsotakis: We will need natural gas for up to 50 more years

The energy transition’s tempo and approach mustn’t destroy competitiveness and hurt the ones less privileged, said Greece’s Prime Minister Kyriakos Mitsotakis, who attended the meeting. In his view, Europe was wrong to expect that everyone else would follow it in the green transformation, so a new balance is necessary, especially in the regulatory framework.

“Sometimes, even in the European Union, we treat natural gas as something horrible. Yes, but we got rid of coal, which is much worse than natural gas. But we all know that we will need natural gas for the next 30 to 40, maybe 50 years,” Mitsotakis stated.