COP28: EU ‘absolutely confident’ CBAM complies with WTO rules

The European Union is “absolutely confident” its Carbon Border Adjustment Mechanism is compliant with World Trade Organization rules and is keen to discuss the true purpose of the instrument with skeptical nations, Wopke Hoekstra, EU Commissioner for Climate Action, said Dec. 6 at the UN Climate Change Conference in Dubai.

CBAM is a carbon tax on emissions-intensive commodities imported into the EU covering cement, iron and steel, aluminum, fertilizer, electricity and hydrogen sectors. The levy is designed to reflect the difference between costs under the EU Emissions Trading System (ETS) and carbon costs in exporting countries.

Countries exposed to the tax, notably China, India, Brazil and South Africa, have raised strong concerns, accusing the EU of insufficient communication, violation of WTO principles, and a lack of a clarity on how CBAM proceeds are to be spent.

“Just to be crystal clear, we’re absolutely confident this is also being seen by the WTO [as] an instrument that does nothing more, nothing less, than creating a level playing field that helps the environment and climate at the same time,” Hoekstra said.

Indeed the impact of CBAM would be “very, very small” and should not be exaggerated, the EU official said.

“I’ll give you a number. Our assessment is that by 2030… the total value of CBAM will be roughly Eur3 billion ($3.24 billion),” he said.

This would be spread across all the relevant companies importing to the EU, “but only to the extent they have not taken carbon reductions into account like European companies are doing,” he said.

“No one gets a better position. No one gets a worse position,” he added.

With CBAM based on EU ETS prices, and those prices set to rise over time, S&P Global Commodity Insights forecasts the instrument could raise more than $80 billion per year by 2040.

Chinese rebuttal

Earlier, at an event held in COP28’s China Pavilion Dec. 4, Chinese environment ministry official Sun Zhen had told the European Commission’s DG for Climate Action “if you want to lead the world, you should stop your CBAM, that’s the simple message.”

Seeking to calm tempers, Hoekstra invited “all companies or countries that might be worried to look into the specifics and the mechanics [of CBAM] and have a dialogue with the European Union.”

Sooner or later more countries would implement CBAM-style policies, the EU official said.

“Maybe CBAM will evolve into a plurilateral mechanism, a carbon club. That’s what China, and its allies in CBAM-related negotiations, are really worried about,” an EU and China climate policy researcher told S&P Global Commodity Insights at COP28.

Australia, the US and the UK are all developing CBAM-alike policies.

Platts, part of S&P Global Commodity Insights, assessed the price EU Allowances (December 2024) at Eur71.58/mtCO2e ($77.20/mtCO2e) Dec. 5.

The weighted average price of China’s compliance emission allowances or CEAs was Yuan 70.53/mtCO2e ($9.88/mtCO2e) as of Dec. 1, Shanghai Environment and Energy Exchange data showed.

Author Ivy Yin, Market Specialist – Energy Transition