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Carbon border tax may mirror ETS – EC


23 Apr 2021 06:32




23 Apr 2021 06:32

(Montel) The European Commission is working on a carbon border adjustment mechanism (CBAM) based on a separate pool of emission certificates for importers which would mirror the EU ETS, said a senior EC tax official.

This approach was needed to be compatible with World Trade Organisation rules and to avoid discriminating between importers from non-EU countries, the EC tax department’s head of the indirect tax unit, Vicente Hurtado Roa, told a webinar late on Thursday. The webinar was hosted by the European Round Table on Climate Change and Sustainable Transition.

The EC is due to propose a CBAM at the end of June, and EU leaders want to start applying it from 1 January 2023. The goal is to avoid the so-called carbon leakage risk of energy-intensive industry production moving from the EU to regions with less-strict carbon constraints.

There are still many open questions on how the CBAM would work, such as whether these certificates would have to be surrendered at the moment of import or at the end of the year like in the ETS, said Hurtado Roa. Other issues include whether such certificates could be stockpiled for hedging, and the possibilities for a secondary market.

The EC has estimated CBAM could raise EUR 5bn-14bn a year for the EU budget. The CBAM’s main goal was not raising money, however, but to ensure non-EU countries contributed to decarbonisation efforts on a par with the EU, he said. The CBAM would not apply to products from non-EU countries which had already applied a similar carbon price on their producers, as the EU had on its producers, for example.

The EC wanted to mirror the ETS as much as possible, “so maybe in the first stage we will try to cover the same emissions covered by the ETS,” said Hurtado Roa.

The EC is considering extending the ETS to transport in proposed changes to the EU ETS directive expected at the end of June. That means the EC may consider at a second stage applying the CBAM to transport, and then to the lifecycle of products.

Legal provisions
“We have to mirror what we have in the ETS and we cannot go further than that if we want to respect all the legal provisions,” he said. The EC would need to allow importers to justify their emissions to respect their rights and avoid imposing unjustified costs on them.

It was still analysing whether to use default values or real emissions. “In many cases real emissions will have to be part of the system,” he said. But in the early stages default values may be needed where it was impossible to use real emissions.

“We have methodologies to assess direct and indirect emissions, so let’s use those,” he said.

The EC also wants the CBAM, like the ETS, to focus on installations rather than companies or countries. The US, for example, has different carbon pricing policies in different states.

Focusing on installations could help resolve concerns about resource shuffling, where countries send their lowest-carbon products to the EU without changing their overall carbon intensity.

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