Wednesday, 28th June 2023, 2pm – 3:30pm CEST | Sign up now
The Green Deal Industrial Plan and Net-Zero Industry Act aim to scale up investments in manufacturing of net-zero technologies and products. However, with the current lack of additional funding available at EU scale, there is a risk that investments will be limited to member states with fiscal capacity subject to highly controversial state aid debates.
Join researchers from the Climate-Friendly Materials Platform (CFMP) for this webinar on Wednesday, 28th June, 2pm CEST to find out and discuss how to close the funding gap for the EU’s green industry plans.
Background
In principle, the reform of the EU Emission Trading (ETS) is one way of tackling the funding gap of the EU’s industrial plans. Allowances that are currently granted for free to industry will be auctioned while carbon leakage risks will be addressed with the Carbon Border Adjustment Mechanism. In practice, as the shift to full auctioning and CBAM is only very gradual until 2035, auction revenues and effective incentives for clean production processes remain limited. The carbon pricing gap results in a funding gap.
A practical solution to close the carbon pricing gap exists and was already prepared by the Commission in the CBAM context: a charge on basic materials like steel, cement clinker, aluminium or high-value chemicals. It would be passed through to all manufactured products, and hence extended to all domestic and imported industrial products. It would be implemented similarly to an excise charge and levied symmetrically on imports (including manufactured products) and waved on exports of materials and products comprising these materials, ensuring WTO and ASCM compatibility and administrative feasibility.
The charge would raise EU-scale funding of €50 billion annually in 2025 (at an EU ETS price of 75 €/tCO2), then decline in parallel as free allowances are gradually reduced. The distributional effect would be progressive, e.g. cost increase relative to expenditure is 0.4% for poor and 0.5% for rich consumers in 2025 (75 €/tCO2). If linked to the EU ETS carbon price, the charge incentivizes efficient material use and recycling, combining emission reductions with a slight GDP increase. The charge could be implemented as an EU environmental regulation with qualified majority voting. Macroeconomic analysis shows this combines emission reductions with a slight GDP increase.