EU in balancing act over carbon border levy, industry concerns

(EurActiv, 15 Feb 2022) The European Commission’s proposed Carbon Border Adjustment Mechanism is meant to replace free allowances distributed to industry under the existing EU ETS, but European steelmakers worry the transition will be a mess and leave them without protection from foreign competitors.

Ten years ago, the price of carbon in the EU’s Emissions Trading System (ETS) was hovering around €6 per tonne of CO2 equivalent – way too low to trigger the kind of emissions reductions the system was designed to encourage.

Today that price has risen to €97 per tonne, thanks to a market intervention decided several years ago and a European Green Deal launched in 2019 which includes steeper emission cuts for 2030 on the way to reaching climate neutrality by mid-century.

But the high price of carbon on the ETS has reopened long-standing concerns about carbon leakage, an anticipated phenomenon whereby companies would move production outside the EU to avoid climate regulations.

European steelmakers, whose emissions are covered by the ETS, warned they would face difficulty competing with foreign producers who don’t face similar costs.

Up till now, these concerns have been met by giving them free allowances under the ETS, effectively a subsidy scheme that rewards steelmakers with carbon credits even when they don’t cut emissions.

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EurActiv, 15 Feb 2022: EU in balancing act over carbon border levy, industry concerns