CO2 tax: initial approval for finished products, but the clause on price rises has been dropped

On 15 September, the European Parliament adopted its position on the extension of the CBAM (Carbon Border Adjustment Mechanism: the carbon tax applied to goods imported from non-EU countries) and on the establishment of a fund to support decarbonisation. With 464 votes in favour, 50 against and 159 abstentions, MEPs backed the Commission’s proposal to extend the scope of the mechanism beyond basic raw materials to a broad list of downstream products, which is wider than in the original text: finished steel and aluminium products such as fasteners, metal wires, springs and household items. They also called for the introduction of an exemption for electricity flows from non-EU countries used by network operators to maintain grid stability.

However, the safeguard measure proposed by the Commission – which would have allowed certain goods to be excluded from the CBAM in the event of a price shock (Article 27a) – was rejected. Instead, Parliament proposed that the CBAM revenue generated from the goods concerned be temporarily channelled to the affected sectors. It also removed the possibility, proposed by the Commission, of using carbon credits under Article 6 of the Paris Agreement to offset obligations arising from the CBAM, as this issue should be discussed as part of the forthcoming review of the ETS.

The European Parliament has also adopted its position on the Temporary Decarbonisation Fund, designed to protect EU producers in export markets, with 433 votes in favour, 97 against and 146 abstentions. MEPs are calling for financial support from the Fund to be provided from 2027 (rather than 2028) until 2029, and they also wish to extend it to fertiliser producers and operators facing higher carbon-related costs, by including urea, ammonium nitrate and ammonium sulphate – considered strategic for food security – amongst the eligible products. According to MEPs, all businesses that use goods subject to the CBAM in their production should be eligible for support from the Fund. Parliament is now ready to begin negotiations with EU Member States.

Disappointment has been expressed by sectors that use materials subject to the CBAM and facing price rises exacerbated by the Middle East crisis, particularly regarding the removal of Article 27a: according to Paolo Fantoni, president of Assopannelli at FederlegnoArredo (which uses urea), “this deprives the system of an important flexibility tool for intervening in exceptional circumstances”. For Copa and Cogeca, ‘it could have protected farmers from the impact of exceptionally high fertiliser prices in times of crisis’. Coldiretti and Confagricoltura take a similar line, emphasising that ‘its removal risks hampering European production capacity and passing on further price increases to end consumers’.