“Let me now turn to our proposal for a Carbon Border Adjustment Mechanism or CBAM. I think this is another demonstration of the potential leading role of the EU at global level. The rationale is to address the risk of carbon leakage which can undermine our efforts when production is moved elsewhere to avoid EU carbon pricing.
Many EU businesses are already subject to the EU's extremely successful flagship Emissions Trading System. But as long as industrial installations outside the EU are not subject to similarly ambitious measures, these efforts can lose their effect.
That's why we need the new CBAM: an environmental policy tool that will equalise the price of carbon between domestic products and imported goods for certain sectors.
The CBAM has been designed to mirror the already existing Emissions Trading System, to ensure a fair and equal treatment for products made in the EU and imports from elsewhere, and to allow for a careful, predictable and proportionate transition for businesses and authorities.
Like the Emissions Trading System, the CBAM will be based on certificates whose prices correspond to the embedded emissions in imported goods.
If it can be shown that a carbon price has been paid for the embedded emissions in those imported goods, that amount will be removed from the importer's bill.
By addressing carbon leakage in this way, companies elsewhere will be incentivised to ‘green' their production processes. And the CBAM will also encourage foreign governments to introduce greener policies for industry.
For the transitional period, which will last from 2023-2025, CBAM will apply to the iron and steel, cement, fertiliser, aluminium and electricity sectors. In this phase, importers will only have to report emissions embedded in their goods, without paying a financial adjustment. This will give time to prepare for the final system to be put in place.
It will enter into force in 2026, coinciding with the entry into force of the reinforced Emissions Trading System. Importers will need to buy certificates that can be offset against embedded emissions. The cost of certificates will be based on weekly Emissions Trading System prices.
Finally, a lot has been said and written over the last few months about the design of the CBAM.
Let me say again that the CBAM is an environmental policy tool, not a tariff tool. It is in line and compliant with international trading rules. It will apply to products, not countries, based on their actual carbon content, independently of their country of origin.
And it has been fully calibrated with the Emissions Trading System so that as free allowances are phased out under the ETS, CBAM is phased in for the sectors it covers.
Of course there is a lot of attention, curiosity and concern about this decision at global level.
Last weekend I was happy to update my counterparts at the G20 in Venice. I can report back that these plans are received overall positively there. There is great interest in how we can cooperate on carbon pricing measures globally. You know that this is under discussion in several countries, from Canada to the US. And we stand ready to discuss the CBAM in the context of the WTO and at the COP26.
Cooperation at global level and European ambition can and will go hand in hand. We are completely open to global cooperation and this is why we have introduced a transition period in introducing the CBAM. But at the same time we can't wait for a quite difficult global carbon pricing system to take place tomorrow because we know knowing our partners that these discussions will take years and years. And as it happens for other measures of the EU, I think that if we give an example of a mechanism, and if it works, and of course without any discriminatory impact, this will be helpful to reach full agreement.
The design we have chosen will gradually bring the CBAM into effect and this will allow the industrial sectors involved to have time to adapt and to provide maximum certainty for business.”
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