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Taxation and Customs Union
News article22 February 2024Directorate-General for Taxation and Customs Union4 min read

Opinion piece by Director-General Gerassimos Thomas for Eurofi magazine

Carbon pricing and CBAM support long-term investment needed for green transition



Through interdependent regulatory, market-based and taxation measures, the EU’s trajectory to climate neutrality by 2050 is well underway. In the coming years, Member States will continue to fine-tune and implement these changes, while doubling down on complementary climate adaptation efforts.

A central pillar of our internal EU strategy and our international cooperation, carbon pricing is not only an effective instrument to curb emissions – it’s also the most efficient way to drive the transition to net zero. The success of the internal EU Emissions Trading System (EU ETS) since its introduction in 2005 led to a 37% reduction in power and industrial emissions to 2021. EU GDP grew by more than 50% in the same period despite major external shocks to the economy. Its recent reinforcement should lead to a 62% reduction by 2030.

The Carbon Border Adjustment Mechanism (CBAM), now in force in its transitional phase, ensures an equivalent carbon price for certain imports to the EU compared to that paid by EU industry under the ETS - combatting the risk of carbon leakage which will be more pronounced as ‘free allowances’ afforded to EU industry under the ETS dry up.

We are fully aware of the need to ensure balance: our ambitious climate initiatives must preserve and promote international trade and competitiveness, including between the EU and the rest of the world. We are contributing to international initiatives such as at the WTO, the UN, the G7 Climate Club and the OECD’s Inclusive Forum on Carbon Mitigation Approaches (IFCMA) to achieve just that. And it is my view that the EU CBAM achieves this balance in three ways.

First, the EU CBAM will help develop a more level-playing field on EU markets and open up investment opportunities for EU industry in the covered sectors who will no longer be undercut by imports that may have been produced under lower green standards. Overall EU production across the four biggest sectors amounts to over 350 million tonnes and employs almost 2 million people.  Nevertheless, the EU is a net importer of CBAM goods: in 2022, the EU imported a total of 115 million tons of iron and steel, aluminium, cement and fertilisers products in the scope of CBAM. Most are from close partners, including in our direct neighbourhood. For example, nearly 20% of iron and steel comes from Ukraine and Türkiye combined and 11% from Canada, while 41% of cement comes from Türkiye and 15% from Algeria. While Russia was a major provider, EU sanctions and trade disruptions mean that other producers of CBAM goods will increasingly export to the EU.

As first-movers in decarbonisation, EU companies are therefore future-proofing their business models in a world where environmental provenance matters to downstream buyers and consumers. Separately, we continue to support industry in their greening efforts such as through the €40 billion EU Innovation Fund, which has already awarded €3.3 billion to 34 projects in CBAM sectors.

Second, any effective carbon price or tax paid abroad can be deducted from the price paid on import under the CBAM, kickstarting conversations in countries and regions worldwide. There are now 73 carbon pricing schemes in nearly 50 countries covering a quarter of emissions — double that in place when the Paris Agreement was signed in 2015. Several countries such as Türkiye, Ukraine, Morocco, India and Brazil, are preparing to introduce carbon pricing or energy taxation measures. Apart from their contribution to climate change mitigation, these measures will also produce significant revenues that can help accelerate those countries’ own green transitions. But, as pointed out by Commission President von der Leyen, to get emissions on track the global price of carbon will need to reach an average of $85 a tonne by 2030, compared with just $5 today. 

Third, CBAM represents a powerful incentive for non-EU companies and EU companies present abroad and their subsidiaries to invest in more sustainable technologies and processes. As producers align with more stringent carbon standards, they become more attractive to the EU and other markets while contributing to a more sustainable global economy.

Not all countries and businesses have the same starting points. EU importers will have to familiarise themselves with the new CBAM to comply with their reporting obligations. To that end, the Commission has made available considerable guidance and simplifications to support them. We are engaging with non-EU countries to explain the CBAM’s purpose and added value for their climate plans and businesses. And we continue to support international partners in their decarbonisation efforts through e.g. the Global Gateway and the Green Team Europe initiatives.

Regional and national carbon pricing regimes are just the start. Global cooperation is clearly necessary to fully exploit this proven tool. The EU will continue to share its unique perspective with all partners to spur global progress that delivers clarity and certainty while driving decarbonisation.

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Publication date
22 February 2024
Directorate-General for Taxation and Customs Union