Carbon Border Adjustment Mechanism (EU )

Agreement was reached on Tuesday on the EU’s Carbon Border Adjustment Mechanism. (CBAM). The agreement needs to be confirmed by ambassadors of the EU member states, and by the European Parliament, and adopted by both institutions before it is final.

This provisional agreement is dependent on some aspects which are relevant for CBAM but need to be spelled out in other pieces of legislation on which negotiations are still ongoing. The Council presidency considers that the CBAM regulation can be formally adopted only once the elements relevant for CBAM are resolved in other related dossiers.

Concerning the products and sectors which fall within the scope of the new rules, CBAM will initially cover a number of specific products in some of the most carbon-intensive sectors: iron and steel, cement, fertilisers, aluminium, electricity and hydrogen, as well as some precursors and a limited number of downstream products. Indirect emissions would also be included in the regulation.

Under the provisional agreement, CBAM will begin to operate from October 2023 onwards. Initially, a simplified CBAM would apply essentially with reporting obligations only. The aim is to collect data. From then onwards, the full CBAM will kick in. It would be phased in gradually, in parallel to a phasing out of the free allowances, once it begins under the revised EU emissions trading system (ETS) for the sectors concerned.

CBAM addresses greenhouse gas emissions embedded in certain goods listed in Annex I of the proposal, upon their importation into the customs territory of the Union, in order to prevent the risk of carbon leakage.

CBAM targets imports of products in carbon-intensive industries. The objective of CBAM is to prevent the greenhouse gas emissions reduction efforts of the EU being offset by increasing emissions outside its borders through relocation of production to non-EU countries (where policies applied to fight climate change are less ambitious than those of the EU) or increased imports of carbon-intensive products.

CBAM is designed to function in parallel with the EU’s Emissions Trading System (EU ETS), to mirror and complement its functioning on imported goods. It will gradually replace the existing EU mechanisms to address the risk of carbon leakage, in particular the free allocation of EU ETS allowances.

It is essentially a Carbon Border tax. Importers will have to buy permits for their carbon emissions at the same price as domestic producers under the EU’s emissions trading system.

Some issues are still outstanding (set to be discussed over this weekend) . These include energy rebates, and the free greenhouse gas allowances currently received by some EU companies.

CBAM is designed to protect against “carbon leakage” – the risk that EU industries could outsource manufacture of goods for the domestic market to regions with lower environmental standards.

Note: the US has introduced its own Inflation Reduction Act of 2022 – a 700 billion US dollar climate, health and tax bill. Information is here.

Environmental Targets (UK)

Late today the UK Government announced its delayed proposals for targets (under the Environment Act 2021) – 13 targets will be laid by statutory instrument – here – they will go live in 2023 once approved by Parliament – this is a link to England’s biodiversity indicators –

Biodiversity on land

• To halt the decline in species abundance by 2030.
• To ensure that species abundance in 2042 is greater than in 2022, and at least 10% greater than 2030.
• Improve the Red List Index for England for species extinction risk by 2042, compared to 2022 levels.
• To restore or create in excess of 500,000 hectares of a range of wildlife-rich habitat outside protected sites by 2042, compared to 2022 levels.

Biodiversity in the sea 

• 70% of the designated features in the MPA network to be in favourable condition by 2042, with the remainder in recovering condition.

Water quality and availability 

• Abandoned metal mines target: Halve the length of rivers polluted by harmful metals from abandoned mines by 2038, against a baseline of around 1,500 km.
• Agriculture target: Reduce nitrogen (N), phosphorus (P) and sediment pollution from agriculture into the water environment by at least 40% by 2038, compared to a 2018 baseline.
• Wastewater target: Reduce phosphorus loadings from treated wastewater by 80% by 2038 against a 2020 baseline.
• Water Demand Target: Reduce the use of public water supply in England per head of population by 20% from the 2019/20 baseline reporting year figures, by 2037/38.

Woodland cover 

• Increase total tree and woodland cover from 14.5% of land area now to 16.5% by 2050.

Resource efficiency and waste reduction 

• Reduce residual waste (excluding major mineral wastes) kg per capita by 50% by 2042 from 2019 levels.

Air quality 

• An Annual Mean Concentration Target for PM2.5 levels in England to be 10 µg m-3 or below by 2040.
• A Population Exposure Reduction Target for a reduction in PM2.5 population exposure of 35% compared to 2018 to be achieved by 2040.

The announcement states the UK Government will set out more details about its plans to deliver these targets in its Environmental Improvement Plan: its manifesto for the environment for the next 5 years. Publication will be by 31 January, as required by law.

There are no targets announced for –

* River or groundwater health (existing legislation is listed for deletion in GB under the Removal of REUL Project)

* Protected nature sites (much of the existing legislation is listed for deletion in GB under the Removal of REUL Project)

* Resource efficiency (existing legislation is listed for deletion in GB under the Removal of REUL Project)