On June 22, the European Parliament (EP) adopted the EU Carbon Border Adjustment Mechanism (CBAM) proposal with 450 votes in favor, 115 votes against, and 55 abstentions, forming the EP’s unified position on the establishment of the CBAM regulation. The vote, which was supposed to take place on June 8, was called off due to divisions within the EP over how to balance climate ambitions with protecting the interests of homegrown industries. This article will sort out the procedure of the CBAM proposal being passed by the EP and analyze the reasons for the divisions within the Parliament, as well as the introduction of the EP's position on the CBAM amendments.

CBAM proposal has a bumpy rode to the European Parliament

On June 8, the European Parliament voted 340 against, 265 in favor, and 34 abstentions, and rejected a revised proposal for reform of the EU Emission Trading System (EU ETS) proposed by the center-right European People's Party (EPP) in conjunction with the Renewal Europe Party (RE), and sent the proposal back to the European Parliament Committee on the Environment, Public Health and Food Safety (ENVI) for further discussion [1]. The rejection of the EU ETS reform proposal precipitated a chain reaction in which the proposal for CBAM was interrelated with the withdrawal of free carbon allowances under the EU ETS reform proposal, resulting in the cancellation of the vote on the CBAM proposal.

The EU ETS reform proposal was rejected, revealing that there are Hugh differences within the EU on core climate policies, mainly in the context of the Russia-Ukraine war, the position on tackling climate change goals and protecting local industrial development. The Green Party and Socialist MPs in the European Parliament rejected the EU ETS reform proposal as insufficiently ambitious in terms of emission reductions, while right-wing parties argued that the proposal set too aggressive emission reduction targets in the context of inflationary pressures and rising energy prices [2]. The EP has three main options for the EU ETS reform proposal: the ENVI solution to reach a unified position in May 2022, the one that was rejected on June 8, and the compromise solution agreed by all parties on June 15 [3] (Table 1) [4].

Table 1: Comparison of the three main EU ETS reform proposals in the European Parliament

Comparing the three solutions, the ENVI proposal is the most radical and ambitious in terms of emissions reductions. Compared to the proposal rejected on June 8, the compromise adopted on June 15 may have won the support of left-leaning parties such as the Greens in the European Parliament by eliminating free allowances a year earlier and increasing the linear reduction factor in 2029, while the addition of export rebates may be the reason for inning the support of the right-wing party.

Compared to the European Commission's proposal in July 2021 proposal (to begin phasing out free carbon allowances in 2026), the compromise reached on June 15 would delay the start of phasing out free carbon allowances by one year, primarily because of the economic burden on European industry is increasing due to inflation and rising energy prices resulting from the Russia-Ukraine conflict. Although energy efficiency and renewable energy are trends of the future, their growth rate is insufficient to replace Russian natural gas. Delaying the beginning of the elimination of free carbon allowances by one year is also a means to provide the European industry breathing space to shift investments and innovate to consider additional carbon reduction and green transformation measures [6].

Next step: CBAM will be officially implemented in 2027

After the EU ETS reform proposal was passed on June 22, the European Parliament subsequently passed a revised proposal for CBAM (Table 2). In March this year, the EU Council has approved the General Approach of CBAM in March, and the EU Council's view is essentially consistent with that of the European Commission. Next, the European Parliament is preparing to begin negotiations with EU member states to finish the final legislative procedure of the CBAM-related regulations by the end of 2022.

Table 2. Main contents of the CBAM proposal finally adopted by the European Parliament [7]

Conclusion

There Russia-Ukraine conflict has led to soaring energy costs in European countries and concerns about rising economic inflation have created tensions between the two and the EU's commitment to combating climate change. Although CBAM is an unproven and effective emission reduction measure, the outside world has doubts about protecting its own trade, but as the EU’s CBAM legislative process draws to a close, countries need to be prepared to deal with the effects of EU CBAM on their export trade.

Note：

[1] Fit for 55: Environment Committee to work on way forward on carbon-pricing laws, European Parliament, Link: https://www.europarl.europa.eu/news/de/press-room/20220603IPR32130/fit-for-55-environment-committee-to-work-on-way-forward-on-carbon-pricing-laws

[2] Risk of delay to carbon market reforms after surprise EU vote, Reuters, Link: https://www.reuters.com/business/environment/eu-lawmakers-reject-carbon-market-reforms-divisive-climate-vote-2022-06-08/

[3] Parliament groups strike compromise on EU carbon market reform, EurActiv, Link: https://www.euractiv.com/section/emissions-trading-scheme/news/parliament-groups-strike-compromise-on-eu-carbon-market-reform/

[4] More breathing space for industry and citizens, Link: https://www.peter-liese.de/en/32-english/press-releases-en/3802-more-breathing-space-for-industry-and-citizens

[5] Linear Reduction Factor (LRF), the number of allowances issued in the EU carbon market each year decreases by a linear reduction factor.

[6] Same as footnote 4

[7] CBAM: Parliament pushes for higher ambition in new carbon leakage instrument, European Parliament, Link: https://www.europarl.europa.eu/news/en/press-room/20220603IPR32157/cbam-parliament-pushes-for-higher-ambition-in-new-carbon-leakage-instrument

Author: Yating Yuan

Editor: Jiaqiao Lin

Translation: Duan Yuxuan

Proofread: Yuan Yating

This article is an original article of the Rock Environment and Energy Institute. Please contact us to obtain the appropriate authorization to reprint. For cooperation and authorization, please send an email to: liying@reei.org.cn

* This is the translation of an article in Chinese. Should there be any inconsistency between Chinese and English version, the Chinese version shall prevail.