Regulation (EU) 2023/956 establishing a carbon border adjustment mechanism

What it is

to establish a new border carbon adjustment mechanism to prevent the risk of carbon leakage and support the EU's increased ambition on climate change mitigation. PROPOSED ACT: Regulation of the European Parliament and of the Council. ROLE OF THE EUROPEAN PARLIAMENT: the European Parliament decides in accordance with the ordinary legislative procedure and on an equal footing with the Council. BACKGROUND: as long as significant numbers of the EU’s international partners have policy approaches that do not result in the same level of climate ambition as the Union, and differences in the price applied to GHG emissions remain, there is a risk of carbon leakage. Carbon leakage occurs if, for reasons of differing ambitions related to climate policies, businesses in certain industry sectors or subsectors were to transfer production to other countries with less stringent emission constraints or imports from these countries would replace equivalent but less GHG emissions intensive products due to the difference in climate policy. The Committee on the Environment, Public Health and Food Safety adopted the report by Mohammed CHAHIM (S&D, NL) on the proposal for a regulation of the European Parliament and of the Council establishing a carbon border adjustment mechanism. The committee recommended that the European Parliament's position adopted at first reading under the ordinary legislative procedure should be amended as follows: Members specified that the regulation establishes a carbon border adjustment mechanism (CBAM) to address the intrinsic greenhouse gas emissions of Annex I goods when imported into the customs territory of the Union in order to reduce global carbon emissions and to support the implementation of the objectives of the Paris Agreement by preventing any potential risk of carbon leakage outside the Union as well as to encourage emission reductions in third countries. Members proposed to broaden the scope of the proposal to cover organic chemicals, hydrogen and plastics, as well as indirect emissions such as those generated by electricity used for manufacturing, heating or cooling in all sectors covered by the CBAM. While the European Commission proposed that the CBAM should not become fully operational until the beginning of 2036, Members consider that it should apply from 1 January 2023 with a transitional period until the end of 2024 and that it should be fully implemented for all EU ETS sectors by 2030 . Until 31 December 2030, the manufacture of Annex I goods would benefit from free allocation of allowances in reduced quantities. A CBAM reducing the allocation of allowances for the manufacture of these goods would be applied. The CBAM would be 100% for the period 1 January 2023 to 31 December 2024, 90% in 2025, 80% in 2026, 70% in 2027, 50% in 2028, 25% in 2029 and 0% in 2030. Each year from 2025 onwards, as part of its annual report to the European Parliament and the Council under Directive 2003/87/EC, the Commission should assess the effectiveness of the CBAM in addressing the risk of carbon leakage for goods produced in the EU and destined for export to third countries that do not apply the EU ETS or a similar carbon…

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