The European Council has proposed strengthening the EU’s carbon border adjustment mechanism (CBAM) by “closing loopholes” and making the system “more robust”.

CBAM, which came into force on January 1, is essentially a tax on imports of carbon-intensive products into the EU, including fertiliser.

The measure requires importers of fertiliser to pay for certificates to import products.

The council today (Friday, June 12) agreed its position on “strengthening the carbon border adjustment mechanism (CBAM)”, the EU’s tool to fight carbon leakage and promote global decarbonisation, ahead of negotiations with the European Parliament.

The council said the new framework would extend the CBAM’s scope “to new products and close loopholes that may be used to circumvent the system”.

Makis Keravnos, minister of finance of the Republic of Cyprus said: “The EU remains committed to reducing climate emissions both within the union and globally.

"The position agreed today is the first step in making the system more robust.”

Extending CBAM’s scope

In its current form, CBAM targets almost only raw materials.

This creates a risk that EU-made products using a significant proportion of CBAM goods in their manufacture (in particular iron, steel and aluminium), could contribute to an increase of emissions outside the EU and replace similar EU products that are subject to the emissions trading scheme.

To prevent this, the updated legislation extends CBAM’s scope to a selection of such "downstream" products.

In its agreed position, the European Council has refined the list of new products to which the CBAM would be applied, and mandates the commission to conduct an annual review on future downstream products that could be included.

Serious and unforeseen circumstances

To deal with serious and unforeseen circumstances causing severe harm to the internal market, the European Commission’s proposal laid out a process to temporarily exempt goods from the CBAM framework.

The European Council insists that any such exemption should be based on "clear and objective criteria", including EU exposure to severe price increases.

Negotiations between the council presidency and the European Parliament are expected to start as soon as possible after the parliament adopts its own position, and with a view to finding an agreement before the end of the year.

Safeguard Mechanism

Also today, finance ministers have adopted their “General Approach” on the European Commission’s proposal to strengthen CBAM.

Member states recognise a safeguard mechanism for fertilisers: Under the agreed approach, the safeguard would be activated if imported fertiliser prices, excluding the CBAM financial liability itself, increase by more than 50% compared with the average of the previous ten years.

Copa Cogeca, the umbrella organisation representing EU farmers and agri-cooperatives, criticised this move.

It said: “Given that fertilisers represent one of the main input costs for EU agriculture, and the primary cost for arable crop farmers, an ineffective safeguard mechanism leaves farmers fully exposed to extreme and sudden price increases, with direct consequences for farm viability, food production and food affordability for consumers.

Copa and Cogeca called on the European Parliament to “take a clear stance in defence of the farming sector” and to propose a “more realistic and operational trigger” to ensure that EU farmers and ultimately consumers are not left to bear the full cost of future market shocks.

Last month, Copa Cogeca said that CBAM could cost farmers €39 billion over a seven-year period.

The organisation said this is equivalent to 10% of the current Common Agricultural Policy (CAP) budget over the same period.