Carbon leakage: Prevent firms from avoiding emissions rules
The European Parliament is discussing a carbon levy on imported goods to stop companies moving outside the EU to avoid emissions standards, a practice known as carbon leakage. Society.
As European industry struggles to recover from the Covid-19 crisis and the economic pressure due to cheap imports from trading partners, the EU is trying to honour its climate commitments, whilst keeping jobs and production chains at home.
An EU carbon levy to prevent carbon leakage
EU efforts to reduce its carbon footprint under the European Green Deal and become sustainably resilient and climate neutral by 2050, could be undermined by less climate-ambitious countries. To mitigate this, the EU will propose a Carbon Border Adjustment Mechanism (CBAM), which would apply a carbon levy on imports of certain goods from outside the EU. MEPs will put forward proposals during March's first plenary session. How would a European carbon levy work?
- If products come from countries with less ambitious rules than the EU, the levy is applied, ensuring imports are not cheaper than the equivalent EU product.
Given the risk of more polluting sectors relocating production to countries with looser greenhouse gas emission constraints, carbon pricing is seen as an essential complement to the existing EU carbon allowances system, the EU's emissions trading system (ETS). What is carbon leakage?
- Carbon leakage is the shifting of greenhouse gas emitting industries outside the EU to avoid tighter standards. As this simply moves the problem elsewhere, MEPs want to avoid the problem through a Carbon Border Adjustment Mechanism (CBAM).
The Parliament's objective is to fight against climate change without endangering our businesses due to unfair international competition due to the lack of climate action in certain countries. We must protect the EU against climate dumping while ensuring that our companies also make the necessary efforts to play their part in the fight against climate change. Yannick Jadot Lead MEP
Existing carbon pricing measures in the EU
Under the current emissions trading system (ETS), which provides financial incentives to cut emissions, power plants and industries need to hold a permit for each tonne of CO2 they produce. The price of those permits is driven by demand and supply. Due to the last economic crisis, demand for permits has dropped and so has their price, which is so low that it discourages companies from investing in green technologies. In order to solve this issue, the EU will reform ETS.
What the Parliament is asking for
The new mechanism should align with World Trade Organisation rules and encourage the decarbonization of EU and non-EU industries. It will also become part of the EU's future industrial strategy.
By 2023, the Carbon Border Adjustment Mechanism should cover power and energy-intensive industrial sectors, which represent 94% of the EU's industrial emissions and still receive substantial free allocations, according to MEPs.
They said that it should be designed with the sole aim of pursuing climate objectives and a global level playing field, and not be used as a tool to increase protectionism.
MEPs also support the European Commission proposal to use the revenues generated by the mechanism as new own resources for the EU's budget, and ask the Commission to ensure full transparency about the use of those revenues.
The Commission is expected to present its proposal on the new mechanism in the second quarter of 2021.
Learn more about the EU's responses to climate change.
Find out more
ECB sets up climate change centre
The new structure will be reviewed after three years, as the aim is to ultimately incorporate climate considerations into the routine business of the ECB.
- The five work streams of the climate change centre focus on: 1) financial stability and prudential policy; 2) macroeconomic analysis and monetary policy; 3) financial market operations and risk; 4) EU policy and financial regulation; and 5) corporate sustainability.
President von der Leyen delivers speech at the One Planet Summit
During the 'One Planet' summit which was held on 11 January in Paris, Commission President Ursula von der Leyen (pictured) delivered a speech on sustainable agriculture, biodiversity and the fight against climate change, stressing that these are different sides of the same coin. To illustrate the EU's support for global co-operation and local action, it pledged to support and sponsor the Africa-led Great Green Wall flagship initiative which aims to tackle the land degradation and desertification, building on the EU's long-standing investment in this initiative.
She also announced that EU research and innovation on health and biodiversity will be a priority as part of a global co-operative and coordination effort. With the Green Deal for Europe, the EU is at the forefront of international action in favour of climate and biodiversity. President von der Leyen highlighted the role of nature and sustainable agriculture in achieving the goal of the Green Deal for Europe, which is to make Europe the first climate neutral continent of by 2050.
Last May, the Commission published the Biodiversity and Farm-to-Table strategies, which set out the EU's ambitious actions and commitments to halt biodiversity loss in Europe and in the world, to transform European agriculture into sustainable and organic agriculture and to support farmers in this transition. The “One Planet” summit, co-organized by France, the United Nations and the World Bank, began with a commitment by leaders in favor of biodiversity, which President von der Leyen has already supported during the session of the United Nations General Assembly last September. The summit sought to build momentum for COP15 on biodiversity and COP26 on climate this year.
Follow the speech by videoconference on EbS.
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