Summary:
The European Green Deal requires an effective Carbon Border Adjustment Mechanism (CBAM) for an inclusive transition to climate neutrality in the basic materials sectors. Otherwise:
- Controversy about the free allowance allocation will persist together with debates on carbon leakage risks, creating uncertainty and delaying low-carbon industrial investments.
- The CO2 price signal of the EU ETS will be largely muted for investments in a transition to climate neutral production and use of materials due to the international tradability of materials.
- Member States would need to fund the transition to climate neutrality from their national resources, which will likely lead to further fragmentation of industrial potential in the EU.
This policy package on a carbon border adjustment mechanism proposed by the Climate Friendly Materials Platform includes three elements:
1. A climate contribution to ensure effective carbon price incentives along the value chain.
2. The EU ETS with free allowance allocation to incentivise carbon efficiency of conventional material production and ensure the integrity of emission cap.
3. Carbon contracts for difference (CCfDs) to introduce incentives for clean material production and recycling.
For more analysis, visit the Climate Friendly Materials Platform.
IIT Project: CFMP_ECF_2019 (CFMP_ECF_2019)
Funding entity: European Climate Foundation (ECF).
Publication date: 01-06-2021
IIT-21-090I
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