COMMISSION STAFF WORKING DOCUMENT Subsidiarity Grid Accompanying the document Proposal for a regulation of the European Parliament and of the Council establishing a carbon border adjustment mechanism

EN EN
EUROPEAN
COMMISSION
Brussels, 14.7.2021
SWD(2021) 647 final
COMMISSION STAFF WORKING DOCUMENT
Subsidiarity Grid
Accompanying the document
Proposal for a regulation of the European Parliament and of the Council
establishing a carbon border adjustment mechanism
{COM(2021) 564 final} - {SWD(2021) 643 final} - {SWD(2021) 644 final} -
{SEC(2021) 564 final}
Europaudvalget 2021
KOM (2021) 0564 - SWD-dokument
Offentligt
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Subsidiarity Grid
1. Ca the U io a t? What is the legal asis a d o pete e of the U io s’ i te ded a tio ?
1.1 Which article(s) of the Treaty are used to support the legislative proposal or policy initiative?
Arti les 191 to 193 of the Treat o the Fu tio i g of the Europea U io TFEU o fir a d
specify EU competencies in the area of climate change. The legal basis for this proposal is Article
192(1) TFEU. In accordance with Articles 191 and 192(1) TFEU, the EU shall contribute to the pursuit,
inter alia, of the following objectives: preserving, protecting and improving the quality of the
environment, promoting measures at international level to deal with regional or worldwide
environmental problems, and in particular combating climate change.
1.2 Is the Union competence represented by this Treaty article exclusive, shared or supporting in
nature?
In the case of environment, the U io s competence is shared.
Subsidiarity does not apply for policy areas where the Union has exclusive competence as defined in
Article 3 TFEU1
. It is the specific legal basis which determines whether the proposal falls under the
subsidiarity control mechanism. Article 4 TFEU2
sets out the areas where competence is shared
between the Union and the Member States. Article 6 TFEU3
sets out the areas for which the Unions
has competence only to support the actions of the Member States.
2. Subsidiarity Principle: Why should the EU act?
2.1 Does the proposal fulfil the procedural requirements of Protocol No. 24
:
- Has there been a wide consultation before proposing the act?
- Is there a detailed statement with qualitative and, where possible, quantitative indicators
allowing an appraisal of whether the action can best be achieved at Union level?
The Commission engaged in an array of public and targeted consultations, for the preparation of this
proposal. An inception impact assessment took place between 4 March and 1 April 2020 with the aim
to collect initial feedback on the project. An open public consultation was also placed on the
Commission website, from 22 July to 28 October 2020, aiming to gather opinions from citizens and
organisations on the justifications, objectives, potential design and scope as well as impacts of the
initiative. In addition to these, the Commission services engaged in extensive bilateral consultations
with public authorities within the EU and third countries, as well as with business associations,
individual companies and NGOs.
The impact assessment is explicit in stating that the only meaningful way to ensure equivalence
et ee the ar o pri i g poli applied i the EU s i ter al arket -by the EU ETS- and the carbon
pricing policy applied on imports is to take action at the level of the Union. CBAM is inherently a
border measure and therefore, there is clear added value of placing the intervention at the EU level,
although its implementation and enforcement will be better performed at Member States level.
These arguments are substantiated qualitatively in the impact assessment.
1
https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:12008E003&from=EN
2
https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:12008E004&from=EN
3
https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:12008E006:EN:HTML
4
https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:12016E/PRO/02&from=EN
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The explanatory memorandum of the proposal and the impact assessment, under chapters 3.2 and
3.3, contain sections on the principle of subsidiarity.
2.2 Does the explanatory memorandum (and any impact assessment) accompanying the
Co issio ’s p oposal o tai a ade uate justifi atio ega di g the o fo ity with the
principle of subsidiarity?
Climate change is, by its very nature, a trans-boundary challenge that cannot be solved by national or
local action alone. Coordinated EU action can effectively supplement and reinforce national and local
action and enhances climate action. Coordination of climate action is necessary at EU level and,
where possible, at global level, and EU action is justified on grounds of subsidiarity.
Since 1992, the EU has worked to develop joint solutions and to drive forward global action to tackle
climate change. More specifically, action at EU level should aim to provide for cost effective delivery
of long-term climate objectives, while ensuring fairness and environmental integrity. The
establishment of a robust governance of the EU 2050 climate-neutrality objective will help to ensure
that the EU remains on track to achieve the objective. Action on climate change adaptation at EU
level enables the integration of adaptation policies and measures in key sectors, governance levels
and EU policies.
There exists already a harmonised carbon pricing system at EU level: the EU ETS. The EU ETS applies
to sectors that are energy-intensive and may be subject to international competition. In order to
ensure a well-functioning single market when the EU increases its climate ambition, it is essential
that a level playing field is created for the relevant sectors in the internal market. The single effective
way to do this is by taking action at the level of the EU. Any initiative needs to be designed in a way
that provides importers, regardless of country of origin and port of entry or destination within the
EU, with uniform conditions and incentives for carbon emission reductions that are equivalent to
those of domestic producers.
Additionally, the need for minimal administrative costs is best achieved by establishing consistent
rules for the entire single market, further underlining the added value of an intervention at the EU
level. Nevertheless, for the sake of minimising costs and ensuring effective action, national
authorities should implement and enforce of the regulation, while a body at EU level could
coordinate their actions and provide assistance. This architecture would draw the lessons of the
successful experience of the EU ETS.
Moreover, as CBAM is inherently a border measure there is clear added value of placing the
intervention at the EU level in view of the fact that external trade is an exclusive competence of the
EU. At the same time, the CBAM also needs to be implemented consistently by Member States in the
EU market and in view of its close links to the EU ETS, there is further justification of intervention at
EU level. The public consultation has confirmed the added value of taking action on the CBAM at the
EU level. In particular, stakeholders agree that a CBAM is needed due to existing differences of
ambition between the EU and the rest of the world and in order to support the global climate efforts.
I additio , i ie of the EU s positio i i ter atio al trade, if it i trodu es a CBAM the
environmental effect on international climate ambitions will be most effective as a potential example
to follow.
2.3 Based on the answers to the questions below, can the objectives of the proposed action be
achieved sufficiently by the Member States acting alone (necessity for EU action)?
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This proposal aims to reduce GHG emissions in the EU and avoiding that these emissions reduction
efforts are offset by emissions increase outside the EU, as a result of carbon leakage, as well as
ensure that the price of imports into the EU reflect more accurately their carbon content. This
problem has a cross-border dimension, so it cannot be tackled independently by Member States. Due
to its environmental nature and in order to avoid trade diversion, CBAM should be more efficient if
designed at EU-level in a uniform way, mirroring EU ETS and designed in a compatible way with WTO
rules.
(a) Are there significant/appreciable transnational/cross-border aspects to the problems being
tackled? Have these been quantified?
The problem addressed by this proposal is how to succeed in reducing GHG emissions in the
EU and avoiding that these emissions reduction efforts are offset by emissions increase
outside the EU, as a result of carbon leakage. This risk increases as the EU raises the ambition
of its climate policies above that of its trading partners. Therefore, the scale of the problem is
commensurate to the raising of the EU climate ambition relative to that of others.
Based on the above, CBAM as a measure –like the problem it addresses - is cross-border one
aiming to ensure that the price of imports into the EU reflect more accurately their carbon
content. The impact assessment studied in detail the transnational aspects to the problem
including impacts on imports and exports of goods subject to CBAM, as well as those
indirectly related through upstream or downstream processes. Efficiency and administrative
impacts on cross-border flows of goods were also studied in the impact assessment.
(b) Would national action or the absence of the EU level action conflict with core objectives of
the Treaty5
or significantly damage the interests of other Member States?
National action would conflict with core objectives of the Treaty, including the ones in Article
32, which establishes in letter (c) the objective of avoiding distorting conditions of
competitions within the custom union and in letter (d) the need to avoid serious
disturbances in the economies of Member States . These objectives would be impaired if
Member States were left free to adopt individual decisions beyond implementation and
enforcement in a matter that involves a number of provisions concerning goods imported in
the Customs Union and a number of references to the custom union code.
Moreover, should Carbon Border Adjustment not be applied in a uniform way, it would
incentivise behaviours resulting in trade diversion and forum shopping, as third country
exporters would import goods through EU jurisdictions applying CBAM in the most lenient
way.
Conversely, the absence of EU level action would significantly damage the interests of
Member States as established in Article 191 TFEU as the objectives of preserving, protecting
and improving the quality of the e iro e t and of avoiding carbon leakage can only be
pursued at EU level.
(c) To what extent do Member States have the ability or possibility to enact appropriate
measures?
5
https://europa.eu/european-union/about-eu/eu-in-brief_en
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Member States do not have the possibility to enact appropriate measures. If they applied on
their own a form of CBAM, they would very seriously risk diverting trade towards Member
States not doing so. Moreover, CBAM is designed with a view to mirror the EU emission
trading system, an EU wide and harmonised instrument, in terms of price of certificates,
phasing out of existing carbon leakage measures and exclusion of third countries.
(d) How does the problem and its causes (e.g. negative externalities, spill-over effects) vary
across the national, regional and local levels of the EU?
Member States are exposed to the risk of carbon leakage to different extent. This exposure
would depend on whether their economies include industries covered by the EU ETS and
more importantly on whether they host particular industrial installations in sectors that are
at risk of carbon leakage. Whether a Member State is at EU s e ter al order it may also
impact its exposure to carbon leakage.
Moreover, differing exposures to the risk of carbon leakage would provide limited
justification for action at national level. Carbon emissions are not localised and like the
EU ETS, the CBAM can achieve greater efficiency when uniformly applied on a broader scale.
(e) Is the problem widespread across the EU or limited to a few Member States?
Climate change and the need to address it is widespread across the EU.
(f) Are Member States overstretched in achieving the objectives of the planned measure?
No, the measure is proposed to support climate policy in the EU and in Member States.
(g) How do the views/preferred courses of action of national, regional and local authorities
differ across the EU?
The European Council invited the Commission to propose a CBAM to ensure the
environmental integrity of EU policies and avoid carbon leakage in a WTO-compatible way6
.
As agreed by the European Parliament, the Council and the Commission, the CBAM will also
for part of e o resour es feedi g i to the EU s udget7
. The European Parliament
adopted a report on a WTO-compatible EU carbon border adjustment mechanism8
. National
authorities of several Member States also have called for the implementation of CBAM.
Regional or local authorities have expressed very few views on CBAM.
2.4 Based on the answer to the questions below, can the objectives of the proposed action be
better achieved at Union level by reason of scale or effects of that action (EU added value)?
Reducing GHG emissions is a trans-boundary issue that requires effective action at the largest
6
European Council. (2020). Conclusions of the European Council of 11 December 2020. (EUCO 22/20 CO EUR
17 CONCL 8).
7
Interinstitutional Agreement of 16 December 2020 between the European Parliament, the Council of the
European Union and the European Commission on budgetary discipline, on cooperation in budgetary matters
and on sound financial management, as well as on new own resources, including a roadmap towards the
introduction of new own resources (OJ L 433I , 22.12.2020, p. 28).
8
European Parliament resolution of 10 March 2021 towards a WTO-compatible EU carbon border adjustment
mechanism (2020/2043(INI))
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possible scale. The EU is well-placed to establish effective climate policy. The introduction of an EU-
wide CBAM will create a common and uniform framework to ensure an equivalence between the
ar o pri i g poli applied i the EU s i ter al arket a d the ar o pricing policy applied on
imports and it will be beneficial for all.
(a) Are there clear benefits from EU level action?
Yes.
(b) Are there economies of scale? Can the objectives be met more efficiently at EU level (larger
benefits per unit cost)? Will the functioning of the internal market be improved?
Yes.
(c) What are the benefits in replacing different national policies and rules with a more
homogenous policy approach?
The introduction of a CBAM will not replace national policies, but will create a common
framework at EU-level to ensure an equivalence between the carbon pricing policy applied in
the EU s i ter al arket a d the ar o pri i g poli applied o i ports.
(d) Do the benefits of EU-level action outweigh the loss of competence of the Member States
and the local and regional authorities (beyond the costs and benefits of acting at national,
regional and local levels)?
Reducing GHG emissions is fundamentally a trans-boundary issue that requires effective
action at the largest possible scale. The EU, as a supranational organisation is well-placed to
establish effective climate policy in the EU, like it has done with the EU ETS. An EU-wide
CBAM is therefore beneficial for all EU Member States and local and regional authorities. This
domestic policy also has transnational aspects, strictly connected with the global dimension
of climate change and the objective of curbing global emissions. In particular, the proposed
regulation involves several custom aspects that falls in the EU exclusive competence, e.g.
custom regimes, import regulations, uniform application of obligations by custom
authorities, and agreements with third countries.
(e) Will there be improved legal clarity for those having to implement the legislation?
Yes, since it is a new measure applying to the whole internal market, a single set of rules will
ensure uniform application, which will be conferred to Member States authorities.
3. Proportionality: How the EU should act
3.1 Does the explanatory memorandum (and any impact assessment) accompanying the
Co issio ’s p oposal o tai a ade uate justifi atio ega di g the p opo tio ality of the
proposal and a statement allowing appraisal of the compliance of the proposal with the
principle of proportionality?
The proposal seeks to address the challenge of reducing GHG emissions in the EU while at the same
time avoiding that these emissions reduction efforts are offset by emissions increase outside the EU.
The policy choices therefore are clearly dictated by the aim to achieve the objectives of the CBAM,
namely to address the risk of carbon leakage in order to fight climate change by reducing GHG
emissions in the EU and globally.
The proposed product coverage of CBAM is framed by the sectors and emissions covered by the EU
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ETS and the CBAM scope should be laid down by a reference to certain goods by way of their
classification in the Combined Nomenclature. This serves the motivation for the measure, namely to
ensure that imports of energy intensive products into the EU are on equal footing with EU products
in terms of EU ETS carbon pricing and to mitigate risks of carbon leakage. CBAM, as an alternative to
free allocation of EU ETS allowances, builds on the logic of the EU ETS starting with sectors where
emissions are the highest and therefore where it would matter most.
The carbon content of products is an essential element of the CBAM as it indicates the carbon
dioxide equivalent emissions released during their production abroad. This is used to ensure that
imported products are treated no less favourably than domestic products produced in EU ETS
installations. As installations covered by the EU ETS are subject to a carbon price assessed on their
actual emissions, imported products in the scope of CBAM should also be assessed based on their
actual GHG emissions. However, such an approach may involve high administrative costs in the
beginning and therefore for an initial transitory period it is proposed to use default values with the
possibility for the importers to demonstrate that their products were produced with actual emissions
lower than the default value, and therefore be subject to a lower CBAM obligation.
As regards the administration of the measure, the choice of empowering national climate CBAM
Authorities is meant to minimise administrative costs associated with this task and increase
effectiveness. This will require, however, in ensuring proper collaboration and coordination of the
assessment of declarations of embedded emissions in imported goods at EU level.
3.2 Based on the answers to the questions below and information available from any impact
assessment, the explanatory memorandum or other sources, is the proposed action an
appropriate way to achieve the intended objectives?
The legal instrument of a Regulation was chosen to ensure direct applicability, uniform application
and uniform enforcement throughout the EU, in order to avoid trade diversion and forum shopping.
With a view to ensure a well-functioning measure meeting its climate objectives, a decentralised
approach with some coordination and support functions at central level is envisaged in the proposal.
Setting up a central CBAM body together with the national climate bodies will minimize the relevant
administrative costs associated and will ensure a coherent application of CBAM to all imports. The
revenues will finance the implementation costs of CBAM as well as generate new own resources for
the EU.
(a) Is the initiative limited to those aspects that Member States cannot achieve satisfactorily on
their own, and where the Union can do better?
Yes.
(b) Is the form of Union action (choice of instrument) justified, as simple as possible, and
coherent with the satisfactory achievement of, and ensuring compliance with the objectives
pursued (e.g. choice between regulation, (framework) directive, recommendation, or
alternative regulatory methods such as co-legislation, etc.)?
The objectives of the present proposal can best be pursued through a Regulation. This will
ensure direct applicability of a number of provisions concerning goods imported in the
Customs Union, included on custom regimes, territorial application, anti-circumvention
provisions, or sanctions. Moreover, this Regulation requires uniform and consistent
application and enforcement throughout the EU by national authorities in order to pursue
the objectives of Articles 32 and 207 TFUE. Any different legal instrument would impair the
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needed uniform application throughout the European Union by disrupting competition
among Member States and creating unwanted effect of trade diversion and forum shopping.
As an example, by choosing the legal instrument of a directive, foreign companies could try
to take advantage of different implementation rules of carbon border adjustment in
different member states by choosing to import and release products into free practice in
Member States applying a more lenient attitude in terms of verification of embedded
emissions, sanctions, or guarantees.
(c) Does the Union action leave as much scope for national decision as possible while achieving
satisfactorily the objectives set? (e.g. is it possible to limit the European action to minimum
standards or use a less stringent policy instrument or approach?)
In order to ensure a well-functioning measure meeting its set climate objectives, a
decentralised approach is envisaged. On the one hand, certain tasks where a single approach
is key such as the publication of the price of certificates and the establishment default values
will be carried out by the Commission, which will also play a role in coordination and advice.
On the other hand, national climate authorities will take care of implementation and
enforcement tasks, such us the sale of CBAM certificates, the reimbursement requests, the
application of penalties. Such system will ensure a coherent application of the CBAM
o ligatio s to all i ports of the rele a t goods i a tra spare t a , safeguardi g the EU s
trade obligations and at the same time ensuring an effective application as regards the
climate effectiveness of the measure.
(d) Does the initiative create financial or administrative cost for the Union, national
governments, regional or local authorities, economic operators or citizens? Are these costs
commensurate with the objective to be achieved?
The implementation of CBAM will create limited administrative costs for the Union. The EU
will benefit from the increased revenues stemming from the CBAM, which will finance the
implementation costs related to the measure a d or e Me er States authorities. It
will also generate new own resources for the EU.
In terms of impacts to economic operators and citizens, CBAM would entail very limited
negative impacts on GDP, investments and consumption in the EU as compared to the case
of raising the EU climate ambition in its absence. At the same time, by capturing carbon
leakage CBAM would limit output losses in the sectors to which it would apply in view of
raising the level of climate ambition. It would also contribute to reduction in emissions in
both the EU and in the rest of the world in CBAM sectors by 2030.
(e) While respecting the Union law, have special circumstances applying in individual Member
States been taken into account?
Yes as part of the impact assessment the Commission analysis reflected, to the extent
possible, the economic and industrial structures of individual Member States as well as their
trade flows with third countries. In this context, individual specificities and differences
between Member States were accounted for in the assessment of impacts by the
Commission.