View from Brussels - January 2022

Environmental policy is once again at the top of the Brussels agenda.

Under the EU’s carbon border adjustment mechanism (CBAM), non-EU importers of say, cement or electricity, must pay a CO2 price equivalent to EU businesses so they cannot undercut EU-produced products.

Once the system is fully operational in 2026, EU importers will have to declare annually the quantity of goods and the amount of embedded emissions in the total goods they imported into the EU in the preceding year, and surrender the corresponding amount of CBAM certificates. MEPs are pressing for earlier adoption and the inclusion of a wider range of imports.

EU industries that pay Europe’s domestic CO2 price will be awarded carbon credits until 2036, but the European Parliament’s opening gambit is to bring this forward to 2028 to wean industries such as steel, off free carbon credits. Naturally, Member States have pushed back on this as they are keen to protect national industries from significant cost increases.  

Meanwhile, the European Commission has extended the deadline for feedback on its draft taxonomy rules until the end of this week following a backlash on its proposal to include nuclear energy and natural gas, notably methane, in its classification of sustainable finance. The Commission’s position reflects the fact that France mainly uses nuclear energy for electricity generation and some southern and eastern Member States rely heavily on gas. The latter would be included on a transitional basis to allow for the development of newer energy sources. Luxembourg and Austria have threatened legal action against the Commission over its nuclear stance.

Both of these measures are designed to put the EU on the front foot when demonstrating its clout as a global power. But they also show that the Commission is at the same time alert to national interests as well as recognising that the transition, if it is to be a just one socially, will need to allow certain practices to continue until affordable alternatives are available to all.

Published 21 Jan 2022