Energy commission defends CBAM’s role in low-carbon transition

The Energy Transitions Commission argues that the Carbon Border Adjustment Mechanism (CBAM) is a necessary policy measure to incentivise the decarbonisation of hard-to-abate sectors in a new paper.

In a paper on global trade in the energy transition, the Commission – described as a global coalition of energy leaders committed to net zero – outlines the need for carbon prices and the “strong rationale” for CBAM to support the energy transition of sectors where clean technologies may never reach cost parity with fossil fuel-based alternatives.

“Given the international nature of several hard-to-abate sectors, achieving effective decarbonisation requires global coordination,” the report’s authors note. “The ideal solution would be globally agreed carbon prices applied to these specific sectors,” they add, naming the recent global carbon levy imposed on the shipping sector as an example.

“In the heavy industry sector, however, there is no international rule-making body with the authority to agree on and enforce a global carbon price.”

Because of this lack of global governance, carbon border adjustment mechanisms (including, but not limited to the EU’s CBAM), can represent “one of the only viable tools for developed countries to decarbonise their hard-to-abate sectors while taking accountability for emissions embedded in imports.”

EU CBAM: ‘Insufficiently robust’

In the EU, CBAM has been criticised for increasing the reporting burden for importers – though 90% of them are set to be exempted from having to comply – only to generate minimum emissions reductions.

The Energy Transitions Commission agrees that the EU’s system has so far been “insufficiently robust to create strong enough incentives for European heavy industry decarbonisation”, but believes its proposed strengthening as part of the Steel and Metals Action Plan would increase momentum.

The proposed changes seek to tighten CBAM rules by introducing: export rebates to ensure EU companies selling their products outside of the EU are not unfairly disadvantaged compared to competitors without a domestic carbon price; improved methods for estimating the emission intensity of different production sources to address greenwashing risks; and the extension of CBAM’s scope to some downstream products reduce the risk of unfair competition moving downstream.

Despite what CBAM critics have said, the Commission also argues that the mechanism is not “inherently protectionist” as long as it is combined with a domestic carbon tax such as the EU ETS.

Reducing reliance on China for cleantech

The paper looks at China’s dominance in the production and export of clean technologies and resulting trade concerns, and makes the case for the development of more local and diversified supply chains – but without aiming for “complete autarky”.

To achieve this, the Energy Transitions Commission suggests focusing on building domestic supply chains in sectors where they could become cost-competitive with potential for sustainable job creation, and aim for “significant local content, but without excluding investment and trade flows”. 

“Countries should welcome foreign products where it will be difficult to develop local substitutes without excessive subsidy or a significant cost penalty – Chinese-made solar panels are an example of this,” the report adds.