Berlin The CO2 border adjustment is at the top of the agenda at the meeting of EU economics ministers on Tuesday. The aim is “to arrive at a general approach to the proposal,” it says.
Things are getting serious for the industry. The companies that will be most affected by the planned CO2 border adjustment are concerned about the development. They fear that the French Council Presidency wants to pass guidelines that could put a massive strain on their competitiveness.
The CO2 border adjustment, known in EU jargon as the “Carbon Border Adjustment Mechanism” or CBAM for short, is one of the instruments used to implement the “Fit for 55” package of the EU. The aim is to reduce the EU’s CO2 emissions by 55 percent by 2030 compared to 1990.
In order to achieve this goal, the basic industry in particular must make massive investments in new plants and at the same time bear higher costs for the ongoing operation of the new plants.
All in all, this means that steel made in Europe, for example, will be significantly more expensive in the future than steel from other regions of the world where less ambitious climate protection regulations apply. Even today, European steel manufacturers are incurring high costs for climate protection as a result of EU emissions trading, but these are partly offset by the free allocation of emission certificates.
To ensure that steel from Europe remains competitive, steel imports from other regions of the world should be subject to a CO2 border adjustment from 2023 according to the ideas of the EU Commission. The compensation should correspond to the amount of CO2 costs that European manufacturers have to bear. A CO2 border adjustment is also being considered for cement, aluminum and some products from the fertilizer industry.
Industry is not convinced
France wants to finish as many parts of the climate protection package as possible during the French Council Presidency, i.e. by the end of June. President Emmanuel Macron is a supporter of CBAM.
The steel industry, on the other hand, is skeptical, as Hans Jürgen Kerkhoff, President of the Steel Industry Association (WVS), told the Handelsblatt newspaper: “Especially at a time of great uncertainty about security of supply and foreign trade frictions, it is a mistake to initiate border adjustments in isolation, and its effects will hit the industry massively.”
The steel industry insists on reliably combining the CO2 border adjustment with the free allocation of emission certificates for as long as possible. “The EU Commission’s proposals to end free allocation and to introduce border adjustments do not provide sufficient protection against carbon leakage,” said Kerkhoff.
Carbon leakage refers to the migration of production due to CO2 costs. The free allocation of emission certificates currently serves to protect against carbon leakage. According to the Commission’s ideas, this should be gradually reduced as quickly as possible with the introduction of the CO2 border adjustment.
Steel from non-EU countries would be significantly more expensive on the European market than before thanks to a CO2 border adjustment.
(Photo: dpa)
As a result, this could mean that European steel would be effectively protected against imports from countries with lower climate protection costs, since steel from these countries would become more expensive due to border adjustments in Europe, but the export of European steel to non-EU countries would not more would be possible, since the price would be too high in an international comparison due to the lack of free certificates.
The share of sales in the steel industry with non-European countries in total sales is almost 20 percent.
WVS President Kerkhoff is convinced that the CO2 border adjustment contradicts national instruments. “We’re basically dealing with two approaches that need to be reconciled,” he said.
While Germany is looking for instruments that give companies scope for investing in green transformation, Brussels has “so far too unilaterally accepted a drastic increase in the cost of production, with the result that investment opportunities are reduced,” said Kerkhoff.
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Kerkhoff bases his arguments on an as yet unpublished study by the consulting firm Prognos, which is available to the Handelsblatt. The study comes to the conclusion that a significant reduction in the free allocation of certificates would lead to steel-producing companies in Europe being forced out of the market before a conversion to low-emission processes is successful.
The introduction of a border adjustment creates cost parity with suppliers from third countries on the European domestic market, “however, leads to the loss of non-European export business and a corresponding reduction in production capacities,” according to the study.
Marc Theuringer, Managing Director of WVS, is alarmed: “Even if a border adjustment works as well as possible according to the ideas of the EU Commission, massive production capacities and, as a result, tens of thousands of jobs will be lost because no equalization mechanism for competition on third markets is provided.”
Green parliamentary group supports the plans
The Greens do not share the concerns of the steel industry. Felix Banaszak, responsible for industrial policy in the Greens parliamentary group, told Handelsblatt that CBAM is “an important tool in the toolbox of the ‘Fit for 55 package'”.
The previous system of free allocations within the framework of emissions trading, on the other hand, was “too unambitious and not targeted enough to bring about a sufficiently rapid reduction in emissions in production”. An effective border adjustment would not only effectively prevent emission shifts in industry, but also give industry a framework for the necessary transformation to climate neutrality.
Lisa Badum, Greens member of the Bundestag and chairwoman of the Bundestag Committee for Climate Protection and Energy, agrees with Banaszak. It is important that the free allocations – provided that the CO2 border adjustment works – “end soon, in fact as early as 2030 – earlier than proposed by the Commission”. As long as certificates are freely allocated, there are “hardly any incentives to quickly tackle the effort towards climate-friendly production,” said Badum.
Banaszak and Badum, together with Dieter Janecek, the economic policy spokesman for the Greens in the Bundestag, have presented a position paper on CO border adjustments. In this they insist on introducing investment subsidies via contracts for differences in addition to border adjustments, but at the same time they call for the free allocation to be phased out quickly.
With contracts for difference, the public sector undertakes towards companies to assume the additional costs compared to investments in conventional technology and the additional expenses of ongoing operations when investing in new, climate-neutral processes.
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