Trésor-Info - Publications de la direction générale du Trésor - CBAMFlux de publication de la direction générale du Trésor - CBAMFluxArticlesTag-CBAMCopyright 20242022-03-21T00:00:00+01:00/favicon.pngDirection générale du Trésorhttps://localhost/sitepublic/contact@dgtresor.gouv.fra50c7e0c-077e-4155-a2b9-cada14d6d012Council agrees on the Carbon Border Adjustment Mechanism (CBAM)On Tuesday 15 March, the Council reached agreement (general approach) on the Carbon Border Adjustment Mechanism (CBAM) regulation, which is one of the key elements of the European Union’s ‘Fit for 55’ package. The main objective of this environmental measure is to avoid carbon leakage. It will also encourage partner countries to establish carbon pricing policies to fight climate change.2022-03-21T00:00:00+01:00<p>For that purpose, CBAM targets imports of carbon-intensive products, in full compliance with international trade rules, to prevent offsetting the EU’s greenhouse gas emissions reduction efforts through imports of products manufactured in non-EU countries, where climate change policies are less ambitious than in the European Union. It will also help prevent the relocation of the production or the import of carbon-intensive products.</p>
<p>The products of the following sectors will be covered by CBAM: cement, aluminium, fertilisers, electric energy production, iron and steel.</p>
<p>CBAM is designed to function in parallel with the EU’s Emissions Trading System (EU ETS), to mirror and complement its functioning on imported goods. It will gradually replace the existing European Union mechanisms to address the risk of carbon leakage, in particular the free allowances of EU ETS allowances.</p>
<p>Compared to the initial proposal by the Commission, the Council opted for a greater centralisation of the CBAM governance, where it makes sense and contributes to greater efficiency. For example, the new registry of CBAM declarants (importers) is to be centralised at EU level.</p>
<p>The Council also foresees a minimum threshold which exempts from the CBAM obligations consignments with a value of less than €150. This measure would reduce administrative complexity, as around one third of consignments to the Union would fall under that category, and their aggregate value and quantity represents a negligible part of greenhouse gas emissions of total imports of such products into the Union.</p>
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<h3>The French Treasury is mobilised for the CBAM</h3>
<p>Since the announcement of the Green Deal in December 2019, the French Treasury has contributed to the design of a carbon border adjustment mechanism (CBAM) and then, in conjunction with the other relevant ministries, negotiated its implementation. Following the proposal formulated by the French authorities in response to the public consultation organised by the European Commission on the subject at the beginning of 2020, the French Treasury organised <a href="https://www.tresor.economie.gouv.fr/Evenements/2021/03/23/un-ajustement-carbone-aux-frontieres-en-faveur-du-climat" target="_blank" rel="noopener noreferrer">an international event in March 2021</a>, bringing together European political leaders, academics, experts, representatives of international organisations and civil society actors from non-EU countries in order to stimulate reflection on the purpose and objectives of this mechanism. This event was accompanied by the publication of a <a href="https://www.tresor.economie.gouv.fr/Articles/2021/03/23/a-carbon-border-adjustment-mechanism-for-the-european-union" target="_blank" rel="noopener noreferrer">Tresor-Economics</a> and an opinion piece signed by several European ministers. Since the publication of the Commission's proposal for a regulation on 14 July, the Treasury has been working with the French Permanent Representation in Brussels and other ministries to develop the compromise reached between Member States on Tuesday 15 March.</p>
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<h2>Next steps</h2>
<p>The Council still has to make sufficient progress on a number of issues which are closely related to CBAM, but are not part of the draft legal text of the CBAM regulation. This concerns in particular the phase-out of the free allowances allocated to industry sectors covered by the CBAM, established by the EU ETS directive, and appropriate solutions on the issue of limiting potential carbon leakage from exports, so that economic efficiency, environmental integrity and WTO compatibility of the CBAM are ensured.</p>
<p>Two other issues will continue to be followed:</p>
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<li>the proposals by the Commission for own resources, based, inter alia, on revenues from the sale of CBAM certificates, which are under consideration for deliberation by 1 July 2022, in accordance with the inter-institutional agreement of 16 December 2020;</li>
<li>the Council noted the importance of greater international cooperation with third countries, including through the establishment, in parallel to the CBAM, of a climate club where carbon pricing policies can be discussed and encouraged.</li>
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<p>Once sufficient progress will have been achieved at the Council, the Council will start negotiations with the European Parliament, after the latter has agreed its position.</p>
<h2>Background</h2>
<p>The Commission presented its proposal for a regulation establishing a Carbon Border Adjustment Mechanism on 14 July 2021. It aims to address the risk of carbon leakage caused by asymmetrical climate policies of non-EU countries (where policies applied to fight climate change are less ambitious than those of the EU). Application of the CBAM would prevent the emissions reduction efforts of the Union being offset by increasing emissions outside the Union due to the relocation of production to non-EU countries or increased imports of carbon-intensive products.</p>
<p>Technical work on the proposal takes places in an Ad Hoc Working Party on CBAM, which the Council specifically established for negotiations on this proposal. At its meeting on 7 December 2021, the ECOFIN Council took note of a progress report by the Presidency.</p>
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<p class="ministre-fonction"><strong><img class="marge" title="Bruno Le Maire" src="https://www.tresor.economie.gouv.fr/Articles/9f06a725-7044-4099-b36a-159b60fec8a4/images/ddc22fbc-18ef-43bb-95cb-24965ff7eb87" alt="Bruno Le Maire" width="136" height="203" />Minister of the Economy, Finance and the Recovery</strong></p>
<p>"The agreement in the Council on the Carbon Border Adjustment Mechanism is a victory for European climate policy. It will give us a tool to speed up the decarbonisation of our industry, while protecting it from companies from countries with less ambitious climate goals. It will also incentivize other countries to become more sustainable and emit less. Finally, this mechanism responds to our European ambitious strategy that is to accelerate Europe’s energy independence."</p>
</div>7c187e98-4da5-4d3c-af6f-ac05c25ec737A Carbon Border Adjustment Mechanism for the European UnionThe EU plans to introduce a Carbon Border Adjustment Mechanism (CBAM) to tackle carbon leakage more effectively. This phenomenon corresponds to an increase in emissions in the rest of the world as a result of the implementation of more ambitious climate policies, such as carbon pricing, by some countries. A CBAM will enhance the effectiveness of European climate policies, and needs to address legal, technical, economic and political challenges to do so.2021-03-23T00:00:00+01:00<p>To achieve carbon neutrality by 2050, the European Union (EU) recently raised its greenhouse gas emissions reduction target for 2030 and plans to strengthen its climate policy instruments, starting with its carbon pricing policy via the Emissions Trading System (EU ETS).</p>
<p>As a result, the divergence with third countries level of carbon pricing (see graph) is expected to widen, posing an increased risk of carbon leakage for the EU. This phenomenon occurs when emissions in third countries increase after a country or region adopts more ambitious climate policies. This undermines the effectiveness of climate policies.</p>
<p>Ex ante modelling estimate carbon leakage to be in the range of 5-30%: in other words, for every 10 tonnes of emission reductions in the country or region implementing more ambitious climate policies, emissions in the rest of the world increase by 0.5-3 tonnes. Whilst it has proven difficult to detect carbon leakage empirically at EU level, in part because of low carbon prices in the past, more recent data suggest that carbon leakage is already taking place.</p>
<p>In June 2021, the European Commission will put forward its proposal for an EU carbon border adjustment mechanism (CBAM). Under this mechanism, EU carbon pricing would apply to imported goods in the same way as for emission-intensive goods produced in the EU. The aim is to tackle carbon leakage more effectively than existing instruments, within a framework compatible with World Trade Organisation (WTO) rules.</p>
<p>The EU CBAM must address a number of legal, technical, economic and political challenges. France has put forward proposals on how to tackle these challenges, favouring a gradual approach based on a system of allowances that mirrors the EU ETS and which accounts for the climate policies and levels of development in third countries.</p>
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<p style="text-align: center;"><img class="marge" title="TE-280en" src="/Articles/7c187e98-4da5-4d3c-af6f-ac05c25ec737/images/110368a9-63b4-4254-823f-eaea203fa63f" alt="TE-280en" /></p>d9ef3189-897c-445d-a955-bce6d25ef2faCarbon Border Adjustments for Climate | Addressing carbon leakage to strengthen global climate action France is honored to convene representatives of the European Commission, international organizations, academics and experts, and civil society stakeholders to intervene during a high-level international virtual conference on carbon leakage and the carbon border adjustment mechanism, which will be held on March 23, 2021.2021-03-01T00:00:00+01:00<center>
<p><img class="marge" src="/Articles/d9ef3189-897c-445d-a955-bce6d25ef2fa/images/27bd4fa8-4523-415c-a9b1-597c4c4b6826" alt="MACF" /></p>
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<p>The scientific community keeps warning us about climate emergency and concerns are increasingly growing on our collective ability to meet the Paris agreement ultimate goals to limit the rise in the planet's temperature to well below 2°C above pre-industrial levels and to continue action to limit this rise to 1.5°C. More needs to be done, and faster. In the context of the necessary increase in global climate ambition, which will be at the heart of COP26 in Glasgow, the European Union (EU) leaders agreed last December to raise the EU net greenhouse gas emission reduction target for 2030 to 55% below 1990 levels, in order to put the EU on the path to GHG net zero emissions by 2050. In parallel, although more than 100 countries have committed or are considering to achieve a long-term objective of carbon neutrality, differences in climate ambition in short and medium terms are significant. As a consequence of this climate ambition gap, the risk of carbon leakage is increasing.</p>
<p>Carbon leakage refers to the situation whereby ambitious climate policies implemented in a region or country result in increased emissions in less ambitious regions through the reallocation of the production, thus undermining the effectiveness of these ambitious climate policies at global level and their social acceptability. In the end, carbon leakage transfers unfairly our emissions to other countries, leaving them polluting more in order to produce the goods we need and consume. Tackling carbon leakage is thus crucial to strengthen the impact of European action against climate change. This phenomenon severely compromises the effectiveness and acceptability of EU emission reduction policies and decarbonisation efforts. As highlighted in the academic literature, to meet this challenge, a Carbon Border Adjustment Mechanism appears to be the most efficient tool.</p>
<p>In that perspective, and following the European Green Deal Communication of December 2019, the European Commission will make proposals by June 2021 to enable the implementation of a Carbon Border Adjustment Mechanism at the European level by 2023. To be fair and legitimate, this mechanism will need to be designed in full compliance with the rules of the World Trade Organization (WTO) and consistent with the multilateral climate framework and global development issues. To be effective, its implementation will need to be carried out in an inclusive and transparent manner.</p>
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<p>The main objective of this public international event will be to discuss central issues raised by the design and implementation of Carbon Border Adjustment Mechanisms generally. This would be an opportunity to communicate broadly and transparently on the purpose and objectives pursued by such instruments, and their main features. The conference will bring virtually together European political leaders, academic and experts, representatives of international organizations and civil society stakeholders from EU third countries in order to share views on the topic. The debates will be organized around three round tables, and will focus on (i) the issue of carbon leakage (ii), its consistency with the framework of the Paris Agreement and global development issues and (iii), the mechanism's compatibility with WTO rules.</p>
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<h2>+ <a href="https://www.tresor.economie.gouv.fr/Evenements/2021/03/23/un-ajustement-carbone-aux-frontieres-en-faveur-du-climat" target="_blank" rel="noopener noreferrer">Registration and agenda >></a></h2>