The European Council has proposed strengthening the EU Carbon Border Adjustment Mechanism (CBAM) by “closing loopholes” and making the system “more robust”.
The CBAM, which came into effect on January 1, is essentially a tax on imports of carbon-intensive products into the EU, including fertilisers.
This measure requires fertilizer importers to pay for product import certificates.
The Council agreed today (Friday 12 June) its position on “Strengthening the Carbon Border Adjustment Mechanism (CBAM)”, the EU’s instrument to combat carbon leakage and promote global decarbonisation, ahead of negotiations with the European Parliament.
The new framework will expand the scope of CBAM “to include new products and close loopholes that could be used to circumvent the system,” the council said.
Makis Keravnos, Minister of Finance of the Republic of Cyprus, said: “The European Union remains committed to reducing climate emissions within the Union and globally.
“Strengthening CBAM and closing loopholes that can circumvent our rules is a key part of achieving this goal.
“The position agreed upon today is the first step in making the regime stronger.”
Expanding the scope of CBAM
In its current form, CBAM targets almost only raw materials.
This creates a risk that products made in the EU that use a significant proportion of CBAM goods in their manufacture (particularly iron, steel and aluminium), could contribute to increased emissions outside the EU and displace similar EU products subject to the emissions trading system.
To prevent this, updated legislation expands the scope of CBAM to include a selection of these “downstream” products.
In its agreed position, the European Council has revised the list of new products to which CBAMs will be applied, and tasks the Commission to conduct an annual review of the final products that could be included in the future.
Dangerous and unexpected circumstances
In order to deal with serious and unforeseen circumstances that cause serious harm to the internal market, the European Commission’s proposal establishes a process for temporarily exempting goods from the CBAM framework.
The European Council insists that any such exemption must be based on “clear and objective criteria”, including the EU’s exposure to sharp price increases.
It is expected that negotiations between the Council Presidency and the European Parliament will begin as soon as possible after the Parliament adopts its own position, with the aim of reaching an agreement before the end of the year.
Safeguards mechanism
Also today, Finance Ministers adopted their “general approach” on the European Commission’s proposal to strengthen CBAM.
Member States recognize a safeguard mechanism for fertilizers: under the agreed approach, the guarantee will be activated if imported fertilizer prices, excluding the financial obligations of the CBAM itself, increase by more than 50% compared to the average of the previous ten years.
Cuba Cojica, the umbrella organization representing EU farmers and agricultural cooperatives, criticized the move.
“Given that fertilizers represent one of the main input costs for agriculture in the EU, and an upfront cost for farmers of arable crops, an ineffective protection mechanism leaves farmers quite vulnerable to sharp and sudden price increases, with direct consequences for farm viability, food production and food affordability for consumers,” she said.
“A crisis tool can only be effective if it is activated before market conditions become uncontrollable.”
Coba and Cogeca called on the European Parliament to “take a clear stand in defense of the agriculture sector” and propose a “more realistic and practical incentive” to ensure that EU farmers and consumers are not left to bear the full cost of future market shocks.
last month, Kojika Cup said That CBAM could cost farmers €39 billion over seven years.
This is equivalent to 10% of the current CAP budget over the same period, the organization said.
