Since 2005, European companies have had to purchase allowances on the EU carbon market to offset their emissions. Yet, many EU firms imported their pollutant products to countries with less constraining standards to avoid paying that tax. The EU has decided, in May 2023, to set up a carbon border adjustment mechanism (CBAM) which will apply to a long pollutant-product list (steel, aluminum, fertilizer, hydrogen and electricity production among others), so as to fight « carbon leakage ». Almost 60% of Europe’s industrial emissions are covered by this process.

The first issue is clearly environmental. By implementing this mechanism, the EU wants to encourage European companies to limit their greenhouse gas (GHS) production, and adds that its initiative could serve as a model worldwide. Conservative Members of the UK Parliament fear that this EU measure will add heavy additional costs and will limit British companies’ opportunities. Behind this tax, hidden economic arguments also exist: the EU plans to improve their companies’ competitiveness that were previously disadvantaged when producing on European soil. This tax will evidently generate large revenues for the EU, which claims that future benefits will reach 10 billion euros per year. This will revitalise the economy in a post-Covid period.

If this new device seems useful and thoughtful, its implementation is actually complex and raises many debates, particularly in Northern Ireland, which could, thanks to the Stormont brake, block EU legal provisions on the territory. In addition, carbon-emissions calculation for each product is not easy, and the CBAM could represent a surplus of administrative complexity for businesses. A risk of price distortion with non-EU competitors represents another issue. EU companies will lose customers to external markets because, by not being subject to a restrictive tax, they will, in theory, be able to sell their products much cheaper. Finally, a backlash could affect the least developed countries and importers of raw materials, in particular African countries, one of Europe’s considerable trading partners. The carbon content of their exports to Europe is much higher than that of other continents, so companies interested in their products will become increasingly rare because of this new measure. The impact of this carbon tax could have serious consequences for them, an impact that the EU is struggling to anticipate. Currently, these countries pollute a lot because of their recent economic development. 

However, even if the transitional phase starts on October 1, 2023, the CBAM will not take effect until 2026. Companies must report the carbon content of their polluting products every three months, but will only start paying the tax in three years. The EU therefore leaves time for companies to adapt to the reform. Time which today, regarding ecology, appears to be significantly limited.

(1) = Emissions Trading System

(2) = Pascal Canfin

Par Méline Vert

Pour aller plus loin sur notre dossier du mois consacré à l’écologie, consultez les articles de nos rubriques Société et Culture sur notre blog.

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