CBAM is critcied as an attempt to shift the cost of emission reductions onto developing countries. (Photo: iStock)
The European Union's Carbon Border Adjustment Mechanism (CBAM), designed to address carbon leakage, has unintentionally hurt domestic exporters as well. EU officials recently indicated that they would assist exporters in coping with the impact and have expressed openness to exploring all possible solutions, which suggests potential revisions to the CBAM regulations.
EU considers changes to CBAM
CBAM is a carbon tariff mechanism introduced by the EU to prevent carbon leakage, which is expected to gradually impose tariffs on imported products and eliminate free carbon allowances. This system aims to reduce emissions while creating a fair business environment and maintaining the competitiveness of local industries. However, EU exporters have complained that having to pay based on carbon emissions will raise their production costs.
Bloomberg reported that Gerassimos Thomas, Director-General of the EU Commission’s Taxation and Customs Union, told reporters at the United Nations Climate Summit (COP29) that ensuring the competitiveness of local industries is a top priority for EU President Ursula von der Leyen. “There are several ideas and nothing is out of the question,” he stated.
Starting next year, the EU plans to test different solutions to help local businesses affected by CBAM, such as steel producers, with a proposal expected in 2026. Thomas admitted, “we are conscious that we will have to tackle this issue earlier than initially envisaged.”
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The EU has stated it will assist local businesses affected by CBAM, such as steel producers. (Photo: Pixabay)
CBAM faces domestic doubts, international criticism
Although CBAM is still in its trial phase, there has already been growing criticism within the EU. Former European Central Bank President Mario Draghi believes that the design is overly complicated and requires cooperation from other countries, making its implementation difficult. He has suggested that the rules be modified.
Internationally, many countries have criticized CBAM for being discriminatory, seeing it as a unilateral measure by the EU to shift the cost of emission reductions onto other nations, particularly affecting developing countries. The BASIC countries—Brazil, South Africa, India, and China—have made the UN Climate Summit’s climate finance agreements a bargaining chip, calling for a delay or abolition of CBAM. The United States is also expected to take counter actions.
At the recently concluded G20 Summit, the 42nd clause of the leader’s declaration was seen by Charles Kenny, a senior researcher at the Center for Global Development, and Giulia Cretti, a researcher at the Clingendael Institute, as an implicit criticism of the CBAM policy, arguing that unilateral trade restrictions should not be used to address climate change.
Source: Bloomberg, Energy Intelligence, GEK Center
