European Parliament votes to expand upcoming carbon tariffs to chemicals

On June 22, 2022, the European Parliament adopted its negotiating position on the European Commission’s proposal for a regulation establishing a Carbon Border Adjustment Mechanism (CBAM).

In the EU, certain industrial sectors must purchase the right to emit greenhouse gases through a system known as the Emissions Trading Scheme. However, stakeholders have expressed concerns that this puts EU producers at a disadvantage, and that the relocation of industrial activities prevents the attainment of emission reduction objectives.

The CBAM would address these concerns by requiring importers to purchase certificates (“CBAM certificates”) reflecting the price of carbon that they would have paid if their products had been produced in the European Union. Among other issues, the Commission’s proposal includes details on the covered products, the calculation of their embedded emissions, and the price of CBAM certificates.

While the European Parliament has overall welcomed the Commission’s draft regulation, it has proposed some amendments to its coverage and timeline. In addition to the product scope proposed by the Commission (iron and steel, aluminium, electricity, cement, organic basic chemicals and fertilizers), the Parliament is proposing to make the system applicable to hydrogen, polymers (i.e. plastics), and organic chemicals. In relation to organic chemicals and polymers, the proposed amendments would see the Commission carry out a study to assess their specific challenges. The Commission would then be able to propose technical adjustments or the delay of the CBAM entry into force relative to these product groups.

Other proposed changes concern the allocation of revenues raised through the scheme, the implementing authority, and the basis for the calculation of embedded emissions. Negotiations between Parliament and the Council of the EU, representing the Member States, will now begin. Both institutions must agree on a final text. The adoption of Parliament’s common position has seen delays in the initial vote, which was scheduled for June 8. This reflects the contentious nature of the proposal, which therefore might still see important changes before becoming law.