Position paper released by the Climate Friendly Materials Platform propose adjustments to unlock inclusive EU industry transition to climate neutrality.
The Carbon Boarder Adjustment Mechanism (CBAM) is a central part of the EU Commission’s plans to transform the steel, iron, cement, fertilisers, aluminium, and electricity industries to net-zero emissions by 2050. A draft proposal is currently circulating in Brussels and beyond ahead of the release mid-July. Analysing the leaked proposal, researchers from the Climate Friendly Materials Platform have raised concerns that in the current form it does not provide an investment framework to prepare EU industrial regions for climate neutrality.
Proposed adjustments to CBAM file
In a position paper released today, the researchers propose adjustments to the CBAM file to secure incentives for investments towards climate neutrality, while avoiding carbon leakage risks and uncertainty on WTO compatibility. The researchers argue this can close the Green Deal between society, industry and the environment – and provide the basis for an inclusive transition to climate neutrality that will not leave any industrial region behind.
The leaked draft of the CBAM file can accommodate these needs. It already envisages a transition period which could be expanded until an international cooperative agreement secures a common and sufficiently high carbon price among major trading partners. During this transition period, the leaked draft already emphasizes the use of default values and can thus be further refined to incorporate the proposed elements.
Three well-established policy elements
The proposal by the Climate Friendly Materials Platform combines three well established policy elements: (i) a climate contribution levied on basic material production and imports to create effective carbon pricing incentives along the value chain which can built on established border adjustment mechanisms from excise charges (ii) free allowance allocation for firms with transition plans to climate neutrality and (iii) carbon contracts for difference issued at EU scale to cover incremental costs of investments aligned with climate neutrality.
These elements have been controversial, in particular because they include continued free allowance allocation to basic material production during the transition period. On its own, free allowance allocation undermines the environmental and industrial policy objectives. However, in combination with a climate contribution levied on producers and importers of basic materials and with carbon contracts for difference, both environmental and industrial policy objectives can be achieved.
Climate Friendly Materials Platform (CFMP)
Convened by Climate Strategies, the Climate Friendly Materials Platform analyses the transformation of basic material production and use to achieve carbon neutrality by 2050. Our collective aim is to aid progress toward nationally-led industrial decarbonisation policy frameworks compatible with long-term EU strategy, and for the EU to capture the potential of a just and inclusive transformation of the basic materials sector to net climate neutrality by 2050. We achieve this through a process of shared learning and creative exchange with key stakeholders. We bring together leading think tanks and university research groups in Belgium, France, Germany, Hungary, the Netherlands, Poland, Spain and Sweden to enhance Europe’s analytic understanding of how individual instruments can be brought together into a coherent policy package.
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