EU trading partners have slammed the bloc’s plan to introduce the world’s first carbon border tax, saying it is protectionist and endangering export industries as negotiations to finalize the deal drag on until the weekend.
According to two people familiar with the discussions, several developing countries have already started negotiating with Brussels over more flexibility in the proposals, including possible exceptions.
The plan is tentative pending a final series of talks this weekend. The agreement then has to be approved by the EU ambassadors. The remaining questions include the specific dates for the phased introduction.
German lawmaker Michael Bloss, a chief negotiator for the European Parliament, said on Saturday that there was “much negotiation” but “little decision” on Friday. Talks “will continue and hopefully conclude negotiations on Europe’s largest climate package,” he told Portal.
Swedish MEP Emma Wiesner said Friday’s talks had brought “surprisingly much progress”. Other EU officials told Portal that no agreement had yet been reached on the most contentious issues.
The tax will oblige importers to buy allowances to cover their emissions based on calculations linked to the EU’s carbon price. Iron, steel, cement, aluminum, fertilizer, hydrogen and power generation are all covered by the agreement. A test phase is scheduled to begin in October 2023.
If deemed a success, the EU plans to expand the scheme to other sectors, including cars and organic chemicals.
The plan has been criticized by countries like the US and South Africa, who said the Carbon Border Adjustment Mechanism (CBAM) will unfairly penalize their manufacturers.
“We are particularly concerned about things like border adjustment taxes and unilaterally imposed regulatory requirements,” Ebrahim Patel, South Africa’s trade minister, told the Financial Times. “If it becomes a huge North-South definition thing, you’re going to have a lot of political opposition.”
“There are many concerns on our part about how this will affect us and our trade relationship,” US Trade Representative Katherine Tai said at a conference in Washington this week.
The EU sees the CBAM as a key part of its effort to reach net-zero emissions by 2050, arguing that at the same time it will encourage countries outside the bloc to decarbonize their industrial sectors.
“CBAM is just a way of threatening third countries that they should also update their climate ambitions,” said Mohammed Chahim, a Dutch socialist politician who led the negotiation of the law for the European Parliament.
Before Russia’s invasion of Ukraine, it was supposed to be the country hardest hit by CBAM. According to an analysis by the Berlin think tank Adelphi, based on data for EU imports between 2015 and 2019, Russian exports made up the majority of imports from CBAM-affected sectors.
The significant drop in imports from Russia due to the EU sanctions regime and the destruction of Ukrainian industry have shifted the burden to other countries.
According to Adelphi, China accounts for around a tenth of the affected imports, and Turkey and India are also affected. China has frequently attacked the tariff since it was first proposed in July last year.
Developing countries with less economic clout and without systems to measure emissions are more likely to suffer most from the introduction of the levy, said Faten Aggad, senior adviser on climate diplomacy at the African Climate Foundation.
“The countries most likely to mitigate the risk of CBAM are those that already have adequate carbon counting in place,” she said. The result could be “de-industrialization” in African countries exporting to the EU.
“A lot of these sectors are at risk of losing business unless we pump money into making them sustainable, and they’re very difficult to build back up.”
Steelmakers in Brazil fear the CBAM could endanger domestic producers. Instead of shipping their goods to Europe, exporters could target less protected steel markets like South America.
“Our big concern is not exports to [Europe]’ said Marco Polo de Mello Lopes, Executive President of Instituto Aço Brasil, but that more material is being diverted to the region, making the domestic industry ‘vulnerable’.
Anger at the measure was compounded by the EU’s insistence that the CBAM will encourage others to decarbonise while not providing funding to help poorer countries invest in clean technology.
According to those familiar with the draft text, proceeds from the CBAM are intended to flow into the EU’s internal budget, with a loose commitment to providing climate finance to countries outside the bloc.
Baran Bozoğlu, chairman of the Climate Change Policy and Research Association, a non-profit research body in Ankara, said it would be “beneficial”. [for the EU] to provide various incentives, supports and technologies so that the Turkish economy is not affected”.
He added that exporters would have to pay to have their carbon emissions calculated and validated in order to report them to the EU. It is a “great injustice” that they have to cover these costs and pay the CBAM, he said.
Additional coverage from Portal, Andy Bounds in Brussels, David Pilling in London and Michael Pooler in Sao Paulo