Free emission quotas, Italy’s proposal to revise CBAM to boost exports

Brussels – Sustainability, yes, but without neglecting economic growth and leaving businesses unheeded. Based on this approach, Italy is trying to revise EU rules through “a more effective border carbon adjustment mechanism (CBAM) for a competitive and decarbonised European industry.” This is the demand contained in the working paper (non-paper) that the government in Rome presented together with France and Slovakia today (March 27) to the Environment Council. “The CBAM is currently in its transitional phase, and the final regime will come into effect in 2026,” the three delegations lamented.” It is therefore essential that key aspects of the regulation be addressed in a timely manner.” 

First, for the three countries, it is necessary to “address the administrative burdens associated with the implementation of CBAM” because “the complexity of this system can lead to delays and a significant increase in management and operational costs for European companies.” So, “a simplification of the regulatory framework is needed to provide operators with clearly defined and simplified technical rules.” In particular, “basing CBAM on predefined emission values for upstream (material suppliers, ed.) and downstream (product users, ed.) sectors could greatly simplify reporting requirements,” and, in addition, “an exemption for small importers should be considered.” 

Second, for Rome, Paris, and Bratislava, “downstream carbon leakage” should be addressed by extending the scope of the CBAM regulation “to downstream sectors and products at risk of carbon leakage by the end of the transition period,” while “with regard to the inclusion of complex products at risk of carbon leakage, such as some highly processed end products,
it might be necessary
to consider a simplified method for calculating embedded emissions.” 

Third element: addressing carbon leakage in exports. The three signatories of the paper highlight that “The CBAM regulation risks being an uncompensated disadvantage for European products covered by EU ETS and exported to third country markets. At this stage, the CBAM does not provide for any measures to prevent the risk of carbon leakage from exports,” and “provides for an ex-post assessment of the risk of carbon leakage from exports every two years from the end of the transition period (the first analysis to be carried out by the end of 2027), if necessary accompanied by a legislative proposal from the European Commission,” they continue. According to the three countries, this ex-post approach could pose a “serious industrial risk to the EU,” while carrying out the assessment “before the end of the transition period” would have this risk assessed and prevented. 

Finally, the paper proposes to extend CBAM to indirect emissions only if it does not jeopardize the decarbonisation and competitiveness of electro-intensive sectors and to assess the impact of CBAM on the competitiveness of the EU industry. “The Commission is required to submit a report by 2028 on the impact of CBAM, particularly on carbon leakage to exports, resource
shuffling,

and an assessment of the overall implementation of the regulation.
Such a report should be anticipated to the end of the transition period,” the paper specifies. “It should propose, if necessary, appropriate and proportionate measures to prevent carbon leakage in support of exporting industries, maintaining, among other measures, targeted free ETS quotas for exports to ensure a level playing field,” it concludes.