On April 18th, the European Parliament approved the Carbon Border Adjustment Mechanism (CBAM), which will require importers of certain products to purchase emission quotas just like European manufacturers, to maintain fair competition conditions in the face of the planned disappearance of free quotas in Europe. The importer of Chinese steel or Turkish cement will have to declare the emissions related to the production process, and if they exceed the European standard, acquire an emission certificate at the price of CO2 in the European Union. The CBAM will be implemented gradually between 2026 and 2034, alongside the phasing out of free emission quotas. The products subject to this quota system and made in Europe will thus be more expensive and therefore less competitive than elsewhere. The system will be experimented with in the fall of 2023, covering only the energy sectors and industries very energy-intensive and commercial aviation.
According to a report coordinated by economist Aude Pommeret, who oversaw the competitiveness aspect of the large report on the economic implications of climate action, the CBAM is an “imperfect mechanism that limits carbon leakage but does not address the question of competitiveness,” while “the European industrial gamble is challenged by the IRA,” the American plan that subsidizes environmentally friendly products made on American soil.
Another criticism of the Pisani-Ferry report is that the CBAM exacerbates the problems of unfair competition for exporters. However, the CBAM will cover only certain products and represents only 7 billion euros out of 575 billion euros of imports to France in 2019. On the other hand, the phasing out of free emission quotas will have a much broader scope, representing “a degradation of operating accounts of companies of the order of 45 billion euros per year at the European level and 4 billion euros in France,” according to French think-tank Rexecode.
The CBAM has been hailed as a step in the right direction, as any European initiative and success in coordinating and moving in the right direction should be widely applauded. However, despite all these imperfections, the CBAM is thought to be a positive step by some observers, as it goes in the right direction.