REGULATORY SCRUTINY BOARD OPINION Proposal for a Regulation of the European Parliament and of the Council Carbon Border Adjustment mechanism

EUROPEAN COMMISSION
23/4/2021
SEC(2021) 564
REGULATORY SCRUTINY BOARD OPINION
Proposal for a Regulation of the European Parliament and of the Council
Carbon Border Adjustment mechanism
{COM(2021) 564}
{SWD(2021) 643}
{SWD(2021) 644}
Europaudvalget 2021
KOM (2021) 0564 - SEK-dokument
Offentligt
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This opinion concerns a draft impact assessment which may differ from the final version.
Commission européenne, B-1049 Bruxelles - Belgium. Office: BERL 08/010. E-mail: regulatory-scrutiny-board@ec.europa.eu
EUROPEAN COMMISSION
Regulatory Scrutiny Board
Brussels,
RSB
Opinion
Title: Impact assessment / Carbon Border Adjustment Mechanism
Overall opinion: POSITIVE WITH RESERVATIONS
(A) Policy context
To achieve climate neutrality by 2050, the Commission has proposed to reduce
greenhouse gas emissions by at least 55% by 2030 compared to 1990. As long as most
international partners do not share the same climate ambition as the EU, there is a risk of
carbon leakage. Carbon leakage occurs when production is transferred from the EU to
other countries with lower climate ambition, or when EU products are replaced by more
carbon-intensive imports. Hence, there would be no reduction in global emissions,
despite EU climate efforts.
This initiative aims to set up a carbon border adjustment mechanism (CBAM) that would
ensure that the price of imports reflects more accurately their carbon content. The
measure needs to comply with World Trade Organization rules and other international
obligations. It would be an alternative to the measures that currently address the risk of
carbon leakage in the EU’s Emissions Trading System (ETS) and the EU state aid rules.
(B) Summary of findings
The Board notes the useful additional information provided in advance of the
meeting and commitments to make changes to the report. It also notes the
significant efforts to coordinate and ensure coherence across the ‘Fit for 55’
initiatives.
However, the report still contains significant shortcomings. The Board gives a
positive opinion with reservations because it expects the DG to rectify the following
aspects:
(1) The report is not clear enough on why existing measures would not be sufficient
to address the risk of carbon leakage.
(2) The report does not sufficiently explain how this initiative will be coherent with
the new ETS proposal, including in the timing of their implementation.
(3) The report does not clearly identify and discuss some of the key impacts of the
initiative. It does not compare the costs and benefits of the centralised and
decentralised administrative implementation options. It does not sufficiently
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discuss the risks for a timely implementation. It does not sufficiently assess the
impacts on the competitiveness of EU exporters and the risks of resource
shuffling.
(4) The report does not take sufficient account of different stakeholder groups’
views.
(C) What to improve
1) The report should be self-standing. It should describe the existing measures to
prevent carbon leakage and better identify their weaknesses.
2) The report should strengthen the discussion on the coherence with the new ETS
proposal. It should explain to what extent the ETS revision depends on the CBAM
initiative. The report should justify why it deviates from the ETS on some aspects, such
as sectoral coverage and the inclusion of transport emissions. It should better explain
why it proposes a parallel system with CBAM certificates to match the carbon content of
imports, instead of ETS allowances. The report should be more explicit on the envisaged
timeframe for the gradual introduction of CBAM and its coherence with the revision of
the ETS.
3) The report should better present and analyse the costs and benefits of different
administrative options, in particular centralised versus decentralised implementation, to
clearly inform the political choices. It should discuss the risks for a timely
implementation, in particular linked to the development of IT systems and the potential
set-up of a central administrative CBAM body.
4) As CBAM is an alternative to free allowances, the initiative should be mainly
compared with the scenario with free allowances, and not with the counterfactual with
full auctioning.
5) The impact analysis should better highlight the effects of the introduction of CBAM
on the competitiveness of EU exporters on third-country markets. It should better
integrate the risks and consequences of resource shuffling and of carbon leakage down
the value chain.
6) While global emissions and engaging with third countries are part of the (specific)
objectives, the relation with third countries should receive more attention. The report
should explain how the CBAM initiative is consistent with the Paris Agreement, and its
parties setting their own ambition levels.
7) The report should systematically take into account the comments made by the
different stakeholder groups throughout the report. In particular, it should be transparent
on their positions on the different options and confront any concerns with the findings of
the analysis.
8) The methodological section (in the annex), including methods, key assumptions, and
baseline, should be harmonised as much as possible across all ‘Fit for 55’ initiatives. Key
methodological elements and assumptions should be included concisely in the main
report under the baseline section and the introduction to the options. The report should
refer explicitly to uncertainties linked to the modelling. Where relevant, the
methodological presentation should be adapted to this specific initiative.
Some more technical comments have been sent directly to the author DG.
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(D) Conclusion
The DG may proceed with the initiative.
The DG must revise the report in accordance with the Board’s findings before
launching the interservice consultation.
If there are any changes in the choice or design of the preferred option in the final
version of the report, the DG may need to further adjust the attached quantification
tables to reflect this.
Full title Updating the EU Emissions Trading System
Reference number Plan/2020/6513
Submitted to RSB on 17 March 2021
Date of RSB meeting 21 April 2021
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ANNEX: Quantification tables extracted from the draft impact assessment report
The following tables contain information on the costs and benefits of the initiative on
which the Board has given its opinion, as presented above.
If the draft report has been revised in line with the Board’s recommendations, the
content of these tables may be different from those in the final version of the impact
assessment report, as published by the Commission.
Table 3-2: Overview of Benefits for Preferred Option – Option 4
I. Overview of Benefits (total for all provisions) – Preferred Option
Description Amount Comments
Benefits
Supporting reduction
of GHG Emissions
Impact on carbon dioxide (CO2) emissions
in the CBAM sectors in EU27 and rest of
the world (% change from MIX with free
allocation in 2030):
- -2.60% in the EU in 2030
- -0.30% in the rest of the world in
2030
By reducing GHG emissions in the
EU, CBAM will enable the EU to
achieve its increased targets for 2030
and become carbon neutral by 2050.
Preventing carbon
leakage in CBAM
sectors
Under option 4, carbon leakage in CBAM
sectors is brought down to -23% in 2030
Preventing carbon leakage is
important to ensure that global
emissions and imports of carbon
embedded products do not rise as a
result of the relocation of industry
from EU.
Revenue generation The yearly revenue stemming from
CBAM is expected to be around:
- EUR 8.5 billion in 2025 (6.3 billion
EUR from auctioning and 2.2 billion EUR
from CBAM)
- EUR 14.7 billion in 2030 (12.1 billion
EUR from auctioning and 3.0 billion EUR
from CBAM)
- Revenue generated is made up of
both the revenues from the CBAM
itself, and from additional auctioning
in the CBAM sectors
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II. Overview of costs – Preferred option
Citizens/Consumers Businesses Administrations
One-off Recurrent One-off Recurrent One-off Recurrent
Economic
and social
costs in the
EU
Direct
costs
- loss of
employment
by 1.10% on
CBAM
sectors in
EU27 in
2030
- Products subject to CBAM
leading to a minimal
decrease in consumption of
0.42%
- expected limited increase in
electricity prices
- expected limited increase
vehicle and household
equipment products
Cost of new
technologies
Compliance costs (See
below)
None None
Indirect
costs
- minimal
loss of
employment
in
downstream
sectors
None None None None
Table 3-3: Overview of costs for Preferred Option – Option 4
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Enforcing
CBAM
Direct
costs
None None None - compliance costs for
quantification of emissions,
documentation, reporting
- Higher compliance costs for
SMEs
- compliance costs for buying
and surrendering CBAM
certificates
- setting up
systems (e.g.
CBAM facility
- setting up
system for
certificates
- Enforcement costs
on processing
documents, payments
and controlling goods.
- Cost of
administering registry
accounts for
transactions of CBAM
certificates
- Costs for
monitoring,
verification and
reporting of carbon
content
Indirect
costs
None None None None None None
Electronically signed on 23/04/2021 09:52 (UTC+02) in accordance with article 11 of Commission Decision C(2020) 4482