EUROPEAN PARLIAMENT APPROVES PROPOSED CBAM

The European Parliament voted to approve the proposed Carbon Border Adjustment Mechanism (CBAM).  The proposal aims to create a requirement that European importers of certain carbon-intensive products purchase carbon certificates that correspond to the carbon price that would have been paid if the product were subject European Union’s carbon pricing.

We highlight the main points adopted by Parliament:

– Start of the transitional phase on 1 January 2023

– Inclusion of indirect emissions in the scope of CBAM

– Start of payment for CBAM Certificates in 2027, which coincides with the phase-out of free allowances to European producers. The phase-out of free allowances for the sectors covered by CBAM will occur between 2027 and 2032 according to the following schedule: 93% in 2027, 84% in 2028, 69% in 2029, 50% in 2030, 25% in 2031 and 0% in 2032.

– Inclusion of polymers, organic chemicals and hydrogen in the scope of CBAM

– Inclusion in 2032 of the other sectors that are part of the EU Emissions Trading System (EU ETS)

– Export rebates will be included for the most efficient EU producers who are subject to carbon pricing and allocate their production to the external market. The European Commission will assess WTO compatibility and publish a report by the end of 2025.

– Centralized CBAM authority.

On the same day, the Parliament approved the EU ETS Reform.  We highlight the following approved items:

– The phase-out of free allowances will occur between 2027 and 2032.

– Insertion of buildings and road transport.

– Revenues to be used exclusively for climate action in EU and member states.

Next steps: Parliament is now ready to start negotiations with member states, until the final version of the legislative text.

The version of the proposal adopted by the European Parliament is available at the link.

The MPA team is monitoring the theme and its implications for Brazil’s business relations.