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Brussels has admitted that the EU’s world-first carbon border tax was “too broad” and “too clunky” as it set out plans to close loopholes before it comes into force next month.
The carbon border adjustment mechanism (CBAM) is meant to level the playing field between EU companies paying high carbon and energy prices and cheaper, “dirtier” products imported from countries with no emissions costs.
The measure, which covers imports into the EU of steel, aluminium, cement, fertilisers, electricity and hydrogen, has drawn strong opposition from the bloc’s key trading partners including China, India and Brazil.
The US has also criticised the levy, despite imports that will be subject to CBAM only accounting for less than 1 per cent of its total trade with the EU.
The European Commission on Wednesday announced several revisions to the measure before it comes into effect on January 1. Importers have had to file paperwork accounting for their emissions this year as part of a practice run but have not yet had to pay any charges.
Wopke Hoekstra, the EU’s climate commissioner, said that in the test phase the commission had found that “our system is too broad, too clunky, had too many loopholes”, and was akin to “a good cheese with some holes in it”.
To close the gaps, the commission said it was going to extend the tax to include downstream products such as washing machines, industrial radiators and garden tools.
The additional products would generate roughly 20 to 25 per cent of total CBAM anticipated revenues. Part of the revenues generated will go towards a fund that will compensate exporters trying to compete in other markets against producers with lower costs and higher carbon emissions.
Such a subsidy scheme was not originally proposed as part of CBAM when it was first announced in 2019 because of opposition from the commission’s trade directorate, which argued that it would not be compliant with World Trade Organization rules.
But Hoekstra said the fund was “truly compatible” with WTO rules and that it would only be a temporary two-year measure until the bloc’s emissions trading scheme is revised in such a way that would support exporters.
The commission has also said that it would crack down on “abusive practices” by forcing importers to use discouragingly high default values if they cannot provide evidence of actual emissions.
Hoekstra said that despite several letters from Ukraine requesting an exemption from CBAM given the destruction of its energy infrastructure and difficult economic situation, Brussels thought the impact of CBAM on the war-torn country was “not nearly in the domain that many have been fearing”.
Exports of goods affected by CBAM represent about 2 per cent of Ukraine’s GDP, the commission said, and were from “relatively low emission intensity” production.
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