New EU Carbon Tariff: German Industry Slams Bureaucratic Burden

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August 28, 2023

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by Nikolaus J. Kurmayer (EURACTIV.com) Germany’s chemical and car industries are protesting the anticipated bureaucratic strain expected from the phase-in of the EU’s novel carbon border tariff (CBAM), while consultancy Deloitte finds that companies have failed to sufficiently prepare.

European manufacturers have previously been able to count on emitting about half of their CO2 without incurring extra charges under the EU’s carbon price (ETS) to maintain their competitiveness vis-à-vis foreign products.

However, in 2021, the European Commission proposed to replace the free emissions rights with a protective carbon tariff – the Carbon Border Adjustment Mechanism (CBAM). The scheme was ultimately adopted, to be gradually phased in from 2026.

Slowly, companies hoping to export their carbon-heavy products into Europe will have to pay up – incrementally matching the carbon avoidance costs of EU companies until 2032, when the scheme will take full effect.

Initially, only steel, iron, cement, aluminium, electricity, hydrogen, and fertiliser – goods whose production is associated with a big share of global CO2 emissions – will be affected by the tariff.

In mid-August, the Commission published the detailed reporting requirements that companies will have to comply with. The data gathering will have to start on 1 October this year and the first report is due for 31 January 2024, much to the dismay of Germany’s chemical industry.

Bureaucratic burdens

“The bureaucratic madness caused by CBAM is unbelievable,” said Wolfgang Große Entrup, chief of the German chemical industry association VCI, on LinkedIn, adding that it is “necessary to draw attention to the new EU ‘climate protection instrument’” and called for European and German politicians to “wake up” to the policy’s impacts.

“CBAM should be the last resort,” said the industry association BDI, arguing that the threat of carbon levies should be used primarily to force foreign countries into compliance.

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Because of the CO2 levy on steel, “CBAM could contribute to making cars more expensive in the EU in the long run,” Freismuth (Stephan Freismuth, tax expert of the auditors KPMG) said.

Foreign companies may also refuse to report their emissions in order to comply with the rules, precluding them from exporting to the EU – resulting in a loss of suppliers, he noted. READ MORE

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EU to launch first phase of world-first CO2 border tax (Reuters)
Carbon Border Adjustment and Car Manufacturing Competitiveness (Transport Energy Strategies)

Excerpt from Reuters: The aim of the new regime is to prevent domestic EU industries from being undercut by more-polluting foreign competitors, while they invest in reducing emissions.

Once it is fully in force from 2026, imports into the EU will pay a CO2 fee equal to what European companies already pay in Europe's carbon market.

Turkey, Ukraine, China and Russia are expected to have the biggest volumes of exports affected by the CO2 tax - although EU trade with Russia has plunged since the Ukraine conflict.

Industries in Europe, Ukraine and Britain said they expected little initial impact, but warned of potentially significant fallout when the full CO2 levy launches in 2026.

From October, the CO2 levy's trial phase will require companies importing steel, cement, aluminium, electricity, fertilisers and hydrogen into the EU to report the emissions involved in producing those goods.

Companies will face penalties of up to 50 euros per tonne of CO2 if they don't report. From 2026, there will be a CO2 fee applied to goods brought into the EU.

A UK Steel spokesperson said it is not expecting a significant impact in the initial reporting phase.

A spokesperson for ArcelorMittal Kryvyi Rih, steelmaker ArcelorMittal's Ukraine subsidiary, said it had "almost all" the data ready to comply.

"However, questions arise regarding the cost of this adaptation and the competitiveness of Ukrainian products in 2026," the spokesperson said, citing companies' limited ability to invest in decarbonisation during wartime.

The border fee won't apply to imports from countries with a CO2 price equal to the EU's. That could benefit Ukraine, which is aligning its climate policies with the EU's, as it bids to join the bloc.

The EU levy also allows exemptions for countries facing unprovoked situations that destroy infrastructure.

"It will be assessed in due time whether this clause can effectively address the exceptional situation of Ukraine," a European Commission official said.

EQUAL COSTS

Brussels hopes the border levy can leverage Europe's market power to nudge foreign companies to reduce emissions to avoid the CO2 fee.

Foreign companies - and governments including China - have warned of other consequences.

The China Iron and Steel Association's Secretary General Jiang Wei said the policy could raise the price of Chinese steel exports to the EU by 4-6%, state media reported this month.

The Association did not respond to Reuters' request for comment.

In a WeChat post on August 31, Chinese steelmaker Baowu Steel Group described the EU levy as a "huge challenge".

"Ninety percent of steel is produced from the blast-furnace and basic oxygen furnace-based process, which is capital intensive and requires enormous investment and time for technological modification," the company said.

Importers can initially use default values to calculate the CO2 footprint of goods if suppliers don't provide precise data. The first reports are due in January.

European industries have urged Brussels to ensure this leniency is only temporary.

If it does not use real emissions data, the levy will fail to penalise the most carbon-intensive power generators, said industry association Eurelectric adviser Ioana Petcu.

"The transitional phase needs to be used to close loopholes and establish more robust rules to tackle circumvention," steel lobby Eurofer's Deputy Director General Adolfo Aiello said.

Concerns about circumvention are likely to increase as the levy's full launch in 2026 gets closer, and Brussels starts phasing out the free CO2 permits it currently gives European companies to reduce their carbon bill. READ MORE