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Carbon border tax, the EU tackles relocation

During its presidency of the EU Council, France is attempting to reach an agreement on the famous carbon border tax that has been the subject of much debate over the past few months. Also known as the Carbon Border Adjustment Mechanism (CBAM), if adopted by the 27 European environment ministers, this new law could be a major tool in the fight against global warming and the quest for carbon neutrality.

A cornerstone of the "Fit for 55" legislative package, itself part of the Green Plan, this mechanism would impose a tax on certain imported goods manufactured by companies outside the European Union. If such products have a carbon footprint or volume above a certain threshold, importers would be subject to a supplementary charge. This principle is modelled on the carbon trading scheme.

Several years ago, the EU set up a mandatory offset market, allocating CO2 emission quotas to companies classified as "largest emitters" and requiring them to buy carbon credits if they exceed their targets.

In the case of the carbon tax, importers of certain categories of goods will have to offset their excess emissions by purchasing carbon certificates from national authorities. Only importers of iron, steel, aluminium, cement, fertilisers and electricity are expected to be affected by the law, but its scope could soon be extended to other sectors such as maritime transport, aviation and hydrogen.

The carbon border tax may be in its final stages, but its creation has been a long struggle. First proposed to the EU in 1991, a year before the Rio Earth Summit, the idea was quickly dismissed before being reintroduced in 2019. But if, more than thirty years later, this mechanism may finally come into being, it carries with it major environmental challenges.

While domestic carbon emissions seem to be decreasing in France, those associated with imported products continue to explode and account for more than half of the country's carbon footprint. This is a reality that is all too often forgotten in the face of the cult of globalisation and which must be tackled head-on if we are to achieve our climate targets. By implementing this tax, the European Union hopes to put an end to the relocation of emitting companies and force them to comply with environmental standards. This will not only promote the development of a more sustainable and environmentally friendly economy on a continental scale, but also reduce emissions in exporting countries outside the EU.

The money collected from the tax and more specifically from the purchase of certificates will be used to replenish the EU's coffers and finance other projects, such as the Russian gas energy crisis.

But the role of the carbon tax does not end there. If this new mechanism is to be of any real use, it is essential to reform and gradually abolish the system of free allocations. Also known as "rights to pollute", these allowances have been strongly criticised by NGOs for years for their lack of incentive for industry to reduce their carbon emissions. Leaving this system in place would prevent the tax from being properly implemented as companies would be able to offset their imports through the use of these free government-issued allowances. Their abolition by 2032 is one of the main objectives of the Green Plan, but is facing a strong opposition. Many manufacturers fear a rise in their production costs and a penalty on foreign markets.

After an initial rejection by MEPs, it has been decided that free allowances will be gradually reduced between 2027 and 2032, at which point the carbon tax will become fully operational. A date considered too late by many NGOs.

Article written by Axelle Rimpot


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