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European Parliament endorses export rebates in carbon border adjustment vote

The European Parliament today voted to continue to grant free allocation of CO2 emission allowances to exports from sectors within the scope of the European Commission’s proposed carbon border adjustment mechanism. The rebates would apply to exports destined for third countries without a carbon pricing mechanism.

During its vote in the plenary in Brussels in which the report on the CBAM was adopted with 450 votes for, 115 against, and 55 abstentions, MEPs chose to provide some support for exports “in order to ensure a level playing field”.

Industry interest groups have long been pushing  for support for EU exports within the carbon border adjustment mechanism. The commission did not include such measures in its original proposal, arguing that such rebates would not be compatible with WTO rules.

The parliament did however oblige the commission to provide by 31 December 2025 a “detailed assessment” of whether these export measures would be WTO-compatible as well as “the effects of the EU ETS and CBAM” on these sectors’ exports.

MEPs also empowered the commission to put forward by 31 December 2026 a legislative proposal “providing for a protection against the risk of carbon leakage that equalises carbon pricing” for CBAM sectors that are destined for export to countries without carbon pricing.

This latter report should assess “potential export adjustment mechanisms for installations belonging to the 10% most efficient installations” under the EU ETS and “in the light of WTO compatibility or any other proposals the commission deems appropriate”.

Earlier timeline, extended scope

Today’s vote had been delayed by two weeks, after MEPs had rejected the parliament’s report on the revision of the EU’s emissions trading scheme on 8 June. Both issues are intricately linked.

Last week a political agreement was reached between the three largest political groups in the parliament – the centre right EPP, the centre left S&D, and the liberal Renew Europe group – concerning the issue of exports as well as the timeline for the introduction of the CBAM and the scope.

Members of the European Parliament are calling for the CBAM to be phased in gradually and for free allocations to be phased out from 1 January 2027. By 2032 – three years earlier than the commission proposal – the CBAM should have fully replaced free allocation, with exports a notable exception.

MEPs also want to extend the scope of the scheme to include organic chemicals, plastics, hydrogen, ammonia, as well as indirect emissions.

The parliament also calls on the EU executive to “establish a timeline” to include other sectors under the EU ETS by 1 January 2030, with priority to be given to goods “that are most exposed to carbon leakage and are most carbon intensive”.

In today’s report MEPs call for “all practices of circumvention” to be prohibited and request the commission to evaluate the risk of these practices.

In the report circumvention is defined as including “transshipment, modified trade patterns towards downstream products, as well as resource shuffling, cost absorption, manipulation of emissions data, wrongful labelling of goods and slight modifications of the product so as to import a product under a different combined nomenclature (‘CN’) code”.

The EU legislators call on the commission to adopt, where appropriate, delegated acts to strengthen anti-circumvention measures.

Chahim: “A very good starting point”

MEPs also reject the commission’s plan to establish an authority in each member state and instead want a single centralised EU CBAM authority to oversee the mechanism.

Least-developed countries should also benefit from additional funding at an amount equivalent to the revenue obtained through CBAM, europarliamentarians believe. The commission’s proposal had earmarked all revenues to its own budget.

Despite many efforts to placate an industry backlash against the phase-out of free ETS allowances and support exports, some sectors remained dissatisfied.

The European Steel Association, EUROFER, said that the parliament’s report is “insufficient to preserve EU exports and doesn’t provide the necessary cautious transition from current carbon leakage measures to CBAM”.

It also calls for a “more cautious transition to CBAM from existing ETS carbon leakage rules – notably regarding a smoother free allocation phase out and the compensation of indirect costs – as long as the new CBAM has not proven its effectiveness”.

Rapporteur Mohammed Chahim was pleased with the outcome, saying that the parliament’s report is “a very good starting point in negotiations with the council”.

“We are ready to find a good and balanced agreement and make sure that the CBAM can be implemented as soon as feasible,” Chahim said.

EU member states are expected to to finalise their common position on the CBAM by the end of the month.

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