German industry favours emission trading over carbon border tax

A carbon border adjustment mechanism (CBAM) to prevent carbon leakage due to higher climate standards for European industry is not a “reliable alternative” to existing measures under the EU’s Emissions Trading System (EU ETS), the Federation of German Industries (BDI) said in an e-mailed statement on 11 March. The European Parliament this week voted in favour of the EU Commission proposing legislation for such a mechanism. A CBAM would introduce a carbon price on certain goods (power, cement, steel, aluminium, oil refinery products, paper, glass, chemicals and fertilisers) imported from outside the EU, if trading partners are less ambitious in their climate action. “This would create a global level playing field as well as an incentive for both EU and non-EU industries to decarbonise in line with the Paris Agreement objectives,” the EU Parliament said in a press release.

However, after lobbying from industry associations, the parliament also decided to retain the distribution of free emissions allowances under the EU ETS while supporting the CBAM. BDI deputy managing director Holger Lösch said this was a “smart decision” and added that legislators should include an expansion of free allocations of emissions allowances for European industry during the upcoming reform of the EU ETS. He said German industry in particular feared disadvantages and trade conflicts that could arise from a carbon border adjustment mechanism. “The EU Parliament sends a clear signal in favour of the existing and well-tested measures of EU emissions trading against carbon leakage.”

The Commission is expected to present a legislative proposal on a CBAM in the second quarter of 2021. This week’s endorsement by the EU Parliament is intended to influence the Commission’s proposal. The target date for the start of the mechanism is 2023.