CBAM Regulation: a discussion with EU energy intensive industries

The EEF opened the 2022 series of events with an Online Energy Debate on the CBAM Regulation.

The industry sectors covered by the proposal, the European Commission, EEF Active Members and several Co-Rapporteurs as well as Shadow Rapporteurs on the file joined our crowded panel, which resulted in a highly valuable and fruitful energy discussion. 

David Boublil, Deputy Head of Unit “Indirect Taxes other than VAT”, DG TAXUD, European Commission, said a CBAM is necessary both to reduce the risk of carbon leakage – which increases as the EU raises its climate ambitions – and to incentivise third countries to adopt green policy frameworks. Focusing first on carbon intensive sectors, the Mechanism would apply the EU carbon pricing to imports into the EU and complement the EU ETS system while being WTO-compatible. Mr Boublil explained the CBAM would look at embedded emissions of imported goods, exclude countries already applying or linked to the EU ETS and deduce the carbon price paid in third countries from the adjustment on imported good. International agreements on how to take carbon price into account and special rules for EU neighbouring countries whose electricity market is coupled with the EU internal one are also foreseen. In the EC view, this would make CBAM able to incentivise decarbonisation efforts outside the EU and favour international cooperation.

Adolfo Aiello, Deputy Director General Climate & Energy of EUROFER, explained the CBAM would operate in an unprecedented context of investments and high carbon costs, particularly by 2030. The reviewed EU ETS and the CBAM risk rising the industry’s direct carbon costs from current 3.5bn €/year up to 13.8 bn €/year in 2030. Also, the proposed CBAM would not solve the mismatch in carbon costs between EU and third country producers: while in the EU a carbon cost is paid on the entire production, in 3rd countries this only applies to the proportion exported to the EU, regardless of the producers’ overall higher emissions per ton of steel. The steel sector counts many product categories and is the most traded commodity globally, being the real “stress test” for CBAM. According to Mr Aiello, caution in CBAM and EU ETS free allowances phasing in/out until 2030 is fundamental to protect competitiveness and avoid too negative effects on downstream sectors. All steps afterwards should only be undertaken once the effectiveness of the mechanism is sufficiently proven and an effective solution for EU exports is in place.

Cillian O’Donoghue, Director, Energy & Climate, Eurometaux first reminded us that electricity price is the key localization factor for the electro-intensive non-ferrous metals sector. He shed light on three main issues with CBAM, starting from the inclusion of indirect emissions: in the EU, companies face a mismatch between actual indirect emissions in power consumption and indirect costs in power bills, which would be difficult to mirror in the CBAM. Also, because of individual assessments, the current proposal to cover indirect emissions costs would risk causing an exponential increase in resource shuffling. Second, a WTO-compatible export solution must be designed before phasing out free allowances to avoid EU exports being replaced by much more CO2 intensive products. Mr O’ Donoghue last focused on the need to strengthen art. 27, sharing considerations on resource shuffling, product scope and cost absorption.

Emmanuel Brutin, Public Affairs Director of CEMBUREAU, started by offering some figures on the significant increase of non-EU cement imports experienced in the last years on the back of high carbon price. He explained the sector is well in favour of a CBAM and made suggestions to make it stronger and watertight, starting from incentives for importers to use verified emissions and a stronger mechanism to tackle circumvention. On free allocation phasing-out, Mr Brutin said this should not start until there are sufficient guarantees that CBAM equalizes CO2 costs and effectively tackles carbon leakage. In the cement sector specifically, calculations have shown that the complete phasing-out of free allowances by 2025, as envisaged in the ENVI Committee’s draft report, would result in the doubling of cement production costs in the EU, leading to a drastic fall in EU exports and creating significant market distortions between cement and the other CBAM sectors. 

Antoine Hoxha, Production & Agriculture Director of Fertilizers Europe, offered a wide-ranging perspective of the carbon-tackling efforts made by the EU fertilizer industry. The sector believes a strong CBAM that cannot be circumvented is key to making third countries follow the EU. Yet starting the implementation of an untested mechanism and the phasing out of free allowances at the same time could have two perverse effects. First, a substantial negative impact down in the value chain, with fertilizers’ prices sharply increasing. Second, the CBAM risks hitting EU exports hard, which would be particularly detrimental for a sector where production is annual while consumption highly seasonal. Mr. Hoxha thus agreed with previous speakers that free allocations should be maintained during a reasonable testing period of the CBAM and that phasing-out should only start after a comprehensive impact assessment has been carried out, the needed changes implemented and an effective export solution designed.

MEPs from the Committees on BUDG, ENVI, ECON, INTA and ITRE joined EEF President Jerzy Buzek, EEF Directors Franc Bogovič, Ondřej Knotek and Maria Spyraki. It was key in this event to have the input from Valérie Hayer (RE, France), co-rapporteur, and form shadow rapporteurs Geert Bourgeois (ECR, Belgium), Adam Jarubas (EPP, Poland), Elena Lizzi (ID, Italy), Margarida Marques (S&D Portugal), and Carlos Zorrinho (S&D Portugal). While they expressed different thoughts on the CBAM –some welcoming the proposals and other having more doubts on its actual necessity – they shared some common concerns: cautiousness in free allowances phasing-out, ensuring WTO-compatibility, eliminating all risks of circumvention, taking good account of current carbon prices and designing a robust monitoring system.

A Q&A session followed, offering participants in the audience an opportunity to ask questions, share views and engage in a very broad exchange with all members of the panel.