Carbon Border Adustment Measure in EU Will Be Controversial, Panelists Say
A European Union official said that even once the bloc passes its Carbon Border Adjustment Measure, "that definitely doesn’t preclude joint work on international coordination" on preventing manufacturing from moving to countries that aren't as ambitious in fighting climate change.
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Madelaine Tuininga, who leads sustainable development and the European Green Deal at the European Commission’s directorate general for trade, said that the basic principle behind CBAM is that imports in the aluminum, steel and iron and cement sectors, and imports of electricity, will be subject to the same carbon pricing as domestic producers of those goods. There are currently free allowances to these carbon-intensive sectors in the EU, and she said the CBAM will be adjusted for that.
"If a non-EU producer can show they have already paid a carbon price, that amount can be deducted," she said at the TradeExperettes webinar on Oct. 28. But that is where it starts to get contentious, because in the U.S., there are some states that have cap and trade programs -- which are an indirect way of creating a carbon price -- but many where there is no carbon tax or cap and trade program. In the U.S., 11 East Coast states from Virginia north are participating, and California and Washington on the West Coast. In Canada, all provinces have either a carbon tax or a cap and trade program, but that carbon tax in British Columbia is $45 Canadian a ton, while the carbon tax in Ontario, Canada's industrial heartland, is $40 a ton.
The Information Technology and Innovation Foundation is a CBAM skeptic, said Stefan Koester, an ITIF senior policy analyst. "We see a lot of concerns with the implementation." He said that the EU's plan to measure carbon footprint at the firm level does not push companies to clean up plants. He pointed to a giant Russian aluminum firm that plans to split its company in two, with dirtier plants continuing to serve Russia and cleaner plants slated to export to EU member states. "You can imagine rationally economic firms doing that around the world," he said.
He's also concerned that firms will circumvent CBAM by fraudulently assigning country of origin of their goods to countries that have a carbon price, or will turn their raw aluminum into a casting or other product that will not face the tax.
"The EU uses an allowance system with pretty volatile pricing," he said, with allowances that can change in value by 50% in one year. He suggested that if the cost of the CBAM to exporters changes so much, it will not convince companies to invest in cleaner technologies because they won't know how long it would take to get a return on the investment.
Susanne Droege, a senior fellow in the global issues division at the German Institute for International and Security Affairs, said that there is a "dry-run phase, where there is no cash involved, but where data is collected from this list of sectors," and that will be in 2024 and 2025. So there is time for major exporters to the EU in these sectors to implement their own carbon pricing to avoid the border tax. "We will learn much more about the production processes abroad -- it’s not rocket science," she said.
Shuting Pomerleau, a climate analyst specializing in carbon border adjustment at the Niskanen Center, a moderate think tank in Washington, D.C., said that it's hard to get a domestic carbon tax, and it's also hard to translate the patchwork of regulations, incentives and subsidies to fight climate change into an equivalent carbon price.