EU carbon tariff agreement reached! Levy starts in 2023

On the morning of December 12, the European Commission, the European Council and the European Parliament conducted the fourth round of tripartite consultations on the EU Carbon Border Adjustment Mechanism (CBAM, also known as "carbon tariff"). In the early hours of the 13th, members of the European Parliament and the Council reached a provisional agreement to establish an EU carbon border adjustment mechanism to address climate change and prevent carbon leakage.

CBAM is one of the core parts of the EU's "Fit for 55" emission reduction plan. In July 2021, the EU released a package of emission reduction plans called "Fit for 55", which includes expanding the EU carbon market, stopping the sale of fuel vehicles, imposing aviation fuel taxes, expanding the proportion of renewable energy, and establishing a carbon border tax, etc. And other 12 new bills, the goal is to reduce carbon emissions by 55% compared with 1990 by 2030.

Since the European Parliament passed the parliamentary version of the CBAM plan on June 22, 2022, the European Commission, the European Council and the European Parliament have all formed their own CBAM plans. The three parties have discussed and negotiated three times on July 11, October 4 and November 8.

According to the agreement reached this time, the EU carbon border adjustment mechanism (CBAM) will be established to make the carbon price paid by EU products under the EU emissions trading system (ETS) equal to the carbon price of imported goods. This will be achieved by forcing companies importing into the EU to purchase CBAM certificates to pay the difference between the carbon price paid in the producing country and the price of carbon allowances in the EU ETS.

The European Parliament said the law was aimed at incentivizing non-EU countries to boost their climate ambitions and was fully in line with World Trade Organization (WTO) rules. Only countries with the same climate goals as the EU can export to the EU without purchasing a CBAM certificate. The new rules will therefore ensure that EU and global climate efforts do not suffer from carbon leakage caused by shifting production from the EU to other countries.

The EU will be the first trading bloc in the world to set a carbon price on its imports, and the bill will apply from 1 October 2023, but there is a transition period in which importers' obligations are limited to reporting. To avoid double protection for EU industry, the length of the transition period and full implementation of CBAM will be linked to the phase-out of free quotas under the ETS.

The European Parliament, the European Commission and the European Council will consult later this week on the revision of the ETS and the outcome of the incorporation into the CBAM regulation.

CBAM coverage

CBAM would cover steel, cement, aluminium, fertilizers and electricity as proposed by the committee, and be extended to hydrogen, indirect emissions under certain conditions, certain precursors and some downstream products such as screws and bolts and similar items of iron or steel.

CBAM implementation period

The CBAM rules will apply from October 1, 2023, and there is a transition period, but since the transition period is closely related to the EU-ETS (EU carbon market) free quota exit schedule (avoiding the principle of double protection), the length of the transition period and the comprehensiveness of CBAM Implementation will be linked to the phase-out of free quotas under the ETS. Therefore, the specific time will be determined after the EU-ETS reform plan is negotiated with the implementation of CBAM. Expanding the scope Before the end of the transition period, the Commission should assess whether to expand the scope to other commodities at risk of carbon leakage, including organic chemicals and polymers, with the aim of including all commodities covered by the ETS by 2030. They should also assess method indirect emissions and the possibility of including further downstream products.

Next step

That part of the agreement depends on an agreement to reform the EU ETS. Parliament and council must formally approve the agreement before the new law can take effect. The new law will enter into force 20 days after publication in the Official Journal of the European Union.

In addition to this, the governance of CBAM will now be more centralized, with the European Commission taking care of most tasks. By the end of 2027, the Commission will conduct a comprehensive review of CBAM, including an assessment of the progress made in international climate change negotiations and the impact on imports by developing countries, particularly least developed countries (LDCs).

Preparations for Chinese companies Huang Zhen, academician of the Chinese Academy of Engineering and vice chairman of the Shanghai Municipal People's Political Consultative Conference, said in an interview with Shanghai Securities News that the EU's carbon border adjustment mechanism will have a great impact on the entire international trade, including China's export trade. Some domestic enterprises have taken the initiative to build zero-carbon industrial parks, or installed photovoltaic panels on the roofs of factories, so that low-carbon emissions can be achieved in the product production chain.

Huang Zhen also suggested to speed up the establishment of a product carbon emission accounting standard system, which means:

One can force enterprises and the industrial chain to reduce carbon from the product side. The carbon emission accounting of products is based on the life cycle method (also known as carbon footprint measurement), covering the whole life cycle process of products from design, production, sales and use. Accounting Carbon emissions in different links, so as to guide enterprises to carry out carbon emission management of the whole production chain of products, in order to achieve the goal of finally producing low-carbon products, and can force all links of the supply chain to reduce indirect carbon emissions through the product side, so as to realize the whole industry chain Reduce carbon emissions. The second is to deal with the EU's "Carbon Emission Border Adjustment Mechanism" and take advantage of the important window of opportunity when CBAM has not yet been officially implemented to establish a product life cycle carbon emission accounting system as soon as possible to prepare for the upcoming carbon tariff and enhance the international competition of Chinese products. force.

Source: Zhihui Photovoltaic