Proposed tariff measures at EU level for avoiding ‘carbon leakage’ will target fertiliser in their first phase of implementation.

Today (Wednesday, July 14) the European Commission unveiled a package of proposals to make the EU’s climate, energy, land use, transport and taxation policies “fit for reducing net greenhouse gas [GHG] emissions by at least 55% by 2030”, compared to 1990 levels.

In its package, the commission has proposed a new Carbon Border Adjustment Mechanism (CBAM) to put a carbon price on imports of a targeted selection of products to ensure that climate action in Europe does not lead to ‘carbon leakage’. It is the first carbon border tariff of its kind in the world.

The commission explained:

“As the EU raises its own climate ambition, but less stringent environmental and climate policies prevail in non-EU countries, there is a strong risk of so-called ‘carbon leakage’, which can shift emissions outside of Europe and seriously undermine EU and global climate efforts.

“That’s why the EU needs a new – green – mechanism for imports of goods from outside the EU: a system that puts a fair price on the carbon emitted during production, and that encourages cleaner industry in non-EU countries.

“Carbon leakage occurs when industries transfer polluting production to other countries with less stringent climate policies, or when EU products are replaced by more carbon-intensive imports.”

Fertiliser ‘most at risk’

The first phase of the carbon border will focus on goods “most at risk” of carbon leakage: cement; iron and steel; aluminium; fertiliser; and electricity.

Under the commission’s proposals, the mechanism will first be introduced in a transitional phase until the end of 2025.

Once fully in place as of 2026, the commission said it will work as follows:

“EU importers of goods covered by the CBAM register with national authorities where they can also buy CBAM certificates.

“The price of the certificates will be calculated depending on the weekly average auction price of EU Emissions Trading System allowances expressed in euro per tonne of CO2 emitted.

“The EU importer must declare by May 31, each year, the quantity of goods and the embedded emissions in those goods imported into the EU in the preceding year.

“At the same time, the importer surrenders the number of CBAM certificates that corresponds to the amount of greenhouse gas emissions embedded in the products.

“If importers can prove, based on verified information from third country producers that a carbon price has already been paid during the production of the imported goods, the corresponding amount can be deducted from their final bill.”

Climate-neutral land use and agriculture

Meanwhile, the commission has also proposed a revised Regulation on Land Use, Forestry and Agriculture.

The proposal includes putting in place binding targets for member states to increase their net carbon removals in the land use and forestry sector for the period from 2026 to 2030 and to simplify compliance rules.

The new member state targets will add up to net carbon removals of -310Mt of CO2 equivalent in the union for 2030, an increase of about 15% compared to today.

The commission is also proposing to aim for an EU-level objective to reach climate neutrality in the combined land use, forestry and agriculture sector by 2035, including non-CO2 agricultural emissions, such as those from fertiliser use and livestock.

The primary production of food and biomass should become climate-neutral by 2035, putting the EU on track towards climate neutrality in 2050.

In addition, the proposal aims to improve the monitoring, reporting and verification of emissions and removals, for example through the increased use of geographical data and remote sensing, so that member states’ progress towards achieving their targets can be followed with increased precision and accuracy, according to the commission.

The commission noted that current rules remain in force until 2025, with new targets for increased net carbon removals for 2026 to 2030.