The Council adopts a general approach on the EU CBAM

On the 15th of March 2022, the finance and economy ministers of the 27 EU Member States agreed on a general approach on the CBAM. The Council’s position on the EU CBAM remains very close to the Commission’s proposal while leaving some crucial questions open.

Regarding the scope, the same 5 sectors are covered: iron and steel, cement, fertilizers and electricity. In other words, the proposal shies away from taking up CBAM rapporteur MEP Mohamed Chahim’s (S&D) demand to expand the scope to also cover organic chemicals, hydrogen and certain plastics or indirect emissions in all sectors. While the text gives a bit more precision regarding the potential inclusion of indirect emissions in the coverage “at the end of the transitional phase”, it only mentions that indirect emissions “could be included”, not that they will.

The pace of the phase out of free allowances is crucial to determine CBAM’s WTO compatibility, CBAM’s international acceptability and CBAM’s level of environmental ambition. But it will be left to the ETS reform, and the Council has still to take a position on this divisive point. The only information provided by the Presidency is that “the CBAM should be progressively phased in while free allowances in sectors covered by the CBAM are phased out”, to ensure a gradual transition from the current system of free allowances to the CBAM.

We do not find new substantial elements regarding the EU’s support towards vulnerable countries, and especially LDCs. The compromise does not include an exemption for LDCs, which would have sent a strong political message and ease some of the tensions surrounding CBAM. The text mentions “technical assistance” as in the Commission’s proposal but falls short of proposing to help at least LDCs to decarbonize and face the consequences of climate change.

By contrast, the text emphasizes international cooperation and promotes a more open, dialogue-oriented approach than the Commission’s proposal. It seems open to a potential role of third countries on “the details of the design of CBAM”, particularly during the transitional period.

Regarding the governance of the EU CBAM, EJD recommended, as did MEP Mohammed Chahim, to establish only one centralized EU CBAM agency, which would facilitate the operationality of the mechanism. The Council, like the Commission, prefers to establish 27 national competent authorities in each Member State. However, the Council compromise adds more details regarding a central registry of authorized CBAM declarations run by the Commission. This goes in the direction of releasing part of the administrative burden from the Member States’ shoulders by centralizing the CBAM’s certificates data.

To conclude, the Council’s position still leaves some crucial questions open, which are decisive to make the CBAM more environmentally ambitious, fairer and more operational.

by Geneviève Pons, Isabelle Garzon and Léa Kauffmann