The three largest political groups in the European Parliament last night struck a new provisional agreement on the proposed carbon border adjustment mechanism ahead of a crucial vote in next week’s plenary session in Brussels.
The parliament’s rapporteur Mohammed Chahim last week decided to postpone the original vote after MEPs rejected their report on the reform of the EU’s emissions trading scheme, with which the CBAM is closely linked.
At the time the rapporteur said that MEPs needed “time to reconcile the proposals”.
The objective of the CBAM, which was proposed by the commission in July, is to reduce incentives for polluters to relocate to regions with less stringent climate policies.
Although the exact wording of the amendments has still to be finalised, in a joint press release today representatives from the centre right EPP, centre left S&D, and liberal Renew Europe group stated that the agreement will “ensure stability in the plenary” and “make sure that the parliament has a widely supported position (… ) before entering into trilogue with the Council”.
New free ETS allowance phase-out an CBAM phase-in calendar, export rebates
The deal proposes the gradual phase out of free allowances for sectors under the EU ETS between 2027 and 2032 with the so-called “CBAM factor trajectory” – the proportion of free allowances still permissible. This would begin at 93% in 2027 and gradually be reduced to 84% in 2028, 69% in 2029, 50% in 2030, 25% in 2031, to reach 0% in 2032.
CBAM would gradually be phased in during this timeframe and would replace the free ETS allowances.
The deal struck last night controversially introduces full export rebates for EU exports for sectors subject to carbon pricing but obliges the commission to assess whether such a measure is WTO-compatible.
On the basis of this assessment the commission would be allowed propose additional measures where appropriate, such as a rebate specifically destined for the most climate-efficient industries.
The original regulatory proposal on CBAM from July last year did not include any provisions for export rebates as such a measure was deemed to flout WTO rules.
The issue has been in the spotlight throughout the decision-making process, with business calling for support for its exports as they are expected to become less competitive on the global market due to the new Fit-for-55 package climate obligations.
New products covered
The scope of the EU’s border carbon levy has also been enlarged in the political agreement to include hydrogen, organic chemicals, and hydrogen, whilst other ETS sectors are also to be included as part of a separate timeline.
Chahim told Borderlex today that the deal “is a good deal. No-one will claim victory, no-one will claim loss”.
The vote in the plenary is scheduled for Wednesday (22 June).