Co2 battle rages between European governments and Brussels

On the one hand, the path of decarbonisation to meet climate targets: a 90% cut in greenhouse gas emissions by 2040 compared to 1990 and the horizon of climate neutrality to 2050. On the other hand, the need to preserve the competitiveness of European industry in the midst of the Middle East crisis with its geopolitical and energy cost implications. In this context, the Co2 battle on the ground of Cbam, the border carbon adjustment mechanism, and ETS, the European greenhouse gas emission allowance trading system, is taking place.

The first one came into force this year. It is part of the EU's Fit for 55 package of measures and applies to certain carbon-intensive goods in six key sectors (iron and steel, aluminium, cement, fertilisers, electricity and hydrogen) imported from third countries into the EU customs territory. Companies falling within the scope are required to purchase Cbam certificates in proportion to the CO₂ incorporated in the imported products. By 31 March, they will have to apply for authorisation as Cbam declarants. In 2026 the cost only applies to 2.5 per cent of the full price, but the share will grow in the following years until it reaches 100 per cent in 2034. Italia, which imports many raw materials from non-EU countries, is the most exposed to the economic impact of the measure according to the consulting firm iSustainability, with at least 3,000 companies affected by the new mechanism.

Among the sectors most affected is the foundry sector, which is highly dependent on imports of essential raw materials such as pig iron, ferroalloys and raw aluminium, subject to the Cbam. 'The mechanism,' explains Fabio Zanardi, president of Assofond, 'is very complex and the situation highly uncertain. The price of these key production inputs for the sector is currently impossible to quantify, as it will depend on the value of the Cbam certificates, which will only be certain when importers will be able to purchase them (from February 2027), and on the actual quantities of CO2 attributable to the products, which cannot be certified before September 2026. Suppliers and buyers are therefore currently unable to set a price, and this is leading to a blockage of sales with a real risk of paralysis'. Hence the association's three requests to Brussels: 'It is necessary,' says Zanardi, 'to extend the transitional period that ended last 31 December to the two-year period 2026-2027, transforming it into an evaluation period to stabilise prices and avert a production halt. In addition, to prevent the Cbam from translating into a competitive disadvantage for the most environmentally virtuous EU companies, it is urgent to exclude from the mechanism cast iron ingots and aluminium ingots imported from non-EU countries and to extend the perimeter to 35 downstream customs codes to also include semi-finished products". The requests have been accepted by the Italia government, which is pressing the EU Commission for a review of the mechanism.

All eyes are also on Ets1, the Emission Trading Scheme. Introduced in 2005, it now covers the electricity sector, the energy-intensive industry, civil aviation and shipping. Under the scheme, the industrial sectors that emit the most CO2 must buy permits for every tonne. The cost paid by companies to buy these permits is the basis for financing transition policies. The EU Commission, while defending the instrument, has already announced an update of the rules by July. Instead, the debut of Ets2, which will cover road transport and air conditioning in buildings, was planned for 2027 but has been postponed to 2028.

Meanwhile, at the end of February, Italia and ten other countries sharpened their weapons by calling for a thorough revision of the Ets. Rome went further by calling for its suspension pending new rules. And in the bill decree it has included a measure to decouple the Ets from the cost of gas for electricity production, estimating a saving of EUR 3 billion a year for households and businesses. The measure, which is under consideration by the Commission, will come into force from 2027. Pressing for the temporary suspension of Ets 1 'to be completely rethought' and the stop of Ets 2 before its entry into force is also Confindustria President Emanuele Orsini. Meanwhile, last week Europe officially opened the dossier: the topic of Ets reform will be on the agenda at the EU summit on 19 and 20 March. Leaders will call for the reorganisation to reduce volatility and the impact on electricity prices.