The EU is tightening the rules on suspending the CBAM

On 12 June, EU countries agreed to limit the circumstances under which the bloc may suspend the collection of carbon levies on imports under the Carbon Border Adjustment Mechanism (CBAM). This was reported by Reuters.

The bloc’s economy and finance ministers backed these plans by a majority vote, though Slovakia, Romania and Lithuania opposed them.

Initially, the European Commission had proposed the possibility of exempting goods from the carbon levy in the future if unspecified ‘serious and unforeseeable circumstances’ led to price increases.

Some governments and companies rejected this approach, arguing that it creates uncertainty for low-carbon investments.

The draft ministerial agreement, seen by the agency, states that the EC may propose suspending the carbon levy only if certain criteria are met. In particular, this could happen if the price of the relevant product has risen by more than 50% over six months compared to the average over the last 10 years.

EU countries and legislators will continue to discuss the final rules. The latter also plan to reduce or completely remove the clause on suspension.

Once the proposals have been finalised, there are also plans to expand the list of goods subject to the carbon emissions levy.

At the same time, European steelmakers have noted the improvements made by EU ministers to the proposed CBAM reform. This is stated in a declaration by the European Steel Association (EUROFER).

However, the association warns of loopholes that could undermine both Europe’s climate ambitions and the competitiveness of the industry.

EUROFER noted improvements such as clearer references to the ‘smelting and casting’ rules and a clearer acknowledgement of the risk that producers outside Europe could circumvent the system through ‘resource reallocation’ practices.

The latter was identified as one of the greatest challenges facing the steel sector. Resource reallocation occurs when foreign producers ship low-carbon steel to Europe whilst continuing to sell higher-carbon steel to other countries.

The European Council also proposes to extend the scope of the CBAM to around 200 additional steel-containing products. The association welcomed this expansion. However, it cautioned that this does not provide comprehensive and structural coverage of many goods in the production of which steel is widely used. As a result, part of the European production chain remains vulnerable to imports not subject to similar carbon emission requirements.

Furthermore, EUROFER criticised the fact that Member States supported the EC’s proposal to add pre-consumer scrap to the list of CBAM precursors without first conducting a specific impact assessment. The association warns that this could have unpredictable consequences for scrap markets and the circular European economy.

As a reminder, in January this year, the EC proposed a provision for the temporary suspension of the CBAM on goods under certain circumstances (Article 27a of the relevant regulation). The instrument is aimed at preventing price distortions in the EU internal market.