Carbon Border Mechanisms

In brief

As proposed in its Green Deal published December 2019, the EU is considering a new Carbon border adjustment mechanism which would involve putting a carbon price on imports of certain goods from outside the EU.

The EU considers the risk of carbon leakage as a significant threat to its ambition to make Europe climate-neutral by 2050. Carbon leakage occurs when companies transfer production to countries that are less strict about emissions. In such case, global emissions would not be reduced. Therefore, this mechanism is seen as a way to ensure the rest of the world moves with the EU towards the same climate goals.

Our view

BACi and CEMBUREAU, the European Cement Association, welcomes the idea of a carbon border mechanism as a key opportunity to enable the industry to help deliver the EU’s carbon neutrality objectives, and drive deeper CO2 emissions’ cut in the EU and beyond.

The European cement industry already faces a strong risk of carbon leakage despite the partial free allocation provided under the EU Emission Trading Scheme (ETS). This risk is increasing at a very fast pace, as third countries which are not subject to the same CO2 constraints build up their export capacity to the EU.

A carbon border mechanism could create the level playing field the industry needs to deliver low-carbon investments and move towards carbon neutrality along the value chain. It could also incentivise third countries to step up their efforts on climate change and ensure that the EU does not “outsource” its CO2 emissions through the import of more CO2-intensive products.

However, carbon border mechanisms are by nature complex tools and it is essential to get their design right. A poorly-designed mechanism could indeed have significant consequences for the industry.

In particular, it is imperative that any carbon border mechanism co-exists with free allocation under the EU ETS, at least until the end of Phase IV. The replacement of the existing carbon leakage measures by an untested mechanism would create considerable uncertainty and risks for investments in the EU, at a time the industry needs a predictable framework to deliver low-carbon investments.

The core objective of a carbon border mechanism should be that producers outside the EU compete on the same CO2 cost basis as EU domestic producers. With this in mind, CEMBUREAU suggests some design principles which (1) are fair and transparent for both EU and non-EU producers, (2) will have a positive impact on climate worldwide, and (3) will avoid carbon leakage and imported CO2 emissions.