On the morning of December 12, the European Commission, the Council of the European Union and the European Parliament held the fourth round of tripartite consultations on the EU Carbon Border Adjustment Mechanism (CBAM, also known as "carbon tariffs"). In the early hours of the 13th, MEPs and the Council reached an interim agreement to establish an EU carbon border adjustment mechanism to address climate change and prevent carbon leakage.
CBAM is one of the core components of the EU's "Fit for 55" emissions reduction program. In July 2021, the EU released a package of emission reduction plans called "Fit for 55", which includes 12 new bills to expand the EU carbon market, stop selling fuel cars, tax aviation fuel, expand the share of renewable energy, establish a carbon border tax, etc. The goal is to reduce carbon emissions by 55% by 2030 compared to 1990.
Under this agreement, the EU Carbon Border Adjustment Mechanism (CBAM) will be established so that the carbon price paid for EU products under the EU Emissions Trading System (EU ETS) will be equal to the carbon price paid for imported goods. This would be achieved by forcing companies importing into the EU to purchase CBAM certificates to cover the difference between the price paid for carbon in the producing country and the price of carbon allowances in the EU ETS.
The European Parliament said the law is intended to provide incentives for non-EU countries to boost their climate ambitions and is fully compliant with World Trade Organization (WTO) rules. Only countries with the same climate objectives as the EU can export to the EU without purchasing a CBAM certificate, so the new rules will ensure that EU and global climate efforts are not subject to carbon leakage caused by the transfer of production from the EU to other countries.
The bill will apply as of October 1, 2023, subject to a transition period during which the importer's obligations will be limited to reporting.
According to a World Bank study, if the "carbon tariff" is fully implemented, Chinese manufacturers will likely face an average tariff of 26% in the international market, and export volumes could fall by 21% as a result. For plastic products export enterprises, this is bound to increase production costs, weaken the competitiveness of products, and even some high pollution, high energy consumption enterprises will also be eliminated.
The EU is China's second largest export market, plastic products export enterprises in the future under the background of carbon peak, carbon neutral, should respond properly to the "carbon tariff" as soon as possible, to minimize its adverse impact to ensure the long-term stable development of enterprises.
The agreement also sets a timetable for cutting free quotas for EU companies, starting in 2026 and gradually achieving total elimination by 2034. Specifically, the free quota for these sectors will be eliminated by 2.5% in 2026, 5% in 2027, 10% in 2028, 22.5% in 2029, 48.5% in 2030, 61% in 2031, 73.5% in 2032, 86% in 2033, and 100% in 2034.
In addition, according to the agreement, the combined emissions of the sectors covered by the European carbon trading system will be reduced by 62 percent by 2030 compared to the 2005 plan, one percentage point more than proposed by the Commission. To achieve this reduction, the number of allowances across the EU would be reduced by 90 million tons of CO2-equivalent in 2024 in one go, 27 million tons in 2026, 4.3% per year from 2024-2027, and 4.4% per year from 2028-2030.
