We don’t need to look very far these days to find evidence of the effects of climate change on our planet. Forest fires burned more than 640,000 hectares of land in the EU alone this year. Last summer, hundreds of lives and thousands of homes were lost in devastating floods in Austria, Belgium, Germany, Italy, and several other European countries. At the same time, Canada had one of its worst wildfire seasons, with tragic consequences for Lytton, BC, and other communities. It is very clear that hiding your head in the sand when it comes to climate change is no longer an option.
And the problem is global. The EU can demonstrate all the ambition in the world, but we also need similar efforts from our international partners, which is the fundamental idea behind the European Commission’s Carbon Border Adjustment Mechanism (CBAM).
Proposed in July alongside the commission’s broader Fit for 55 holistic package of 14 proposals to deliver a climate-neutral continent by 2050, it will foster greener industrial practices and more environmentally friendly policies around the world. CBAM is fully consistent with and complementary to all other proposals put forward earlier this year, covering reforms in emissions trading, energy, land use and taxes.
We want to make sure that the EU’s efforts to cut emissions do not inadvertently lead to a carbon leak, that is. they are not undermined by polluting industrial activity moving elsewhere, or by the replacement of EU production by more carbon-intensive imports. CBAM wants to incentivize third-country producers to adopt carbon-friendly production processes to combat climate change. It will be based on the actual emissions of each producer in a third country. The price paid at the border will reflect any reduction in embedded emissions and carbon prices already paid in the country of origin. For example, it will fully recognize the price Canada has placed on carbon pollution, thereby rewarding the efforts of the producers involved to reduce their carbon footprint.
CBAM will initially be applied to a limited number of products (cement, iron, steel, aluminum, fertilizers, and electricity) that are collectively responsible for 45 percent of CO2 emissions from sectors at risk of carbon leakage.
CBAM will not go into effect immediately; During a three-year transition period starting in 2023, importers will only have to report the emissions incorporated into their products, with no obligation to pay a financial adjustment.
We will review the mechanism in 2025, working with all stakeholders, including industry, to eliminate wrinkles before it goes into full effect in 2026 for the products in question. And we will try to collaborate with Canada to refine CBAM during its trial period (2023-26) before its full implementation.
We have made every effort to design our CBAM in such a way that it fully respects the rules of international trade. It will be applied impartially, without arbitrary discrimination against third-country producers or unjustified trade restrictions. Producers in third countries will have to pay the same carbon prices that EU companies already pay and will not be treated less favorably than ours.
We are not going to let companies fend for themselves. In late October, G20 leaders pledged to cooperate to implement and disseminate technologies that are renewable and emit zero or low carbon emissions, recognizing that responsible consumption and production are critical enablers of the transition to low-emission economic systems.
We are also collaborating with like-minded countries to inform the design of CBAM. We are encouraged that Canada is exploring a similar carbon border adjustment to ensure imported products face the same cost of contamination as Canadian-made products.
As the international conversation on carbon pricing accelerates in the wake of this month’s COP26 Climate Change Conference in Glasgow, swift and decisive action by the EU and Canada can influence and inspire advocacy for measures to mitigate carbon. climate change around the world.
Gerassimos Thomas is the Director General for Taxation and Customs Union of the European Commission.
This post was corrected after it was posted.
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