KEY MESSAGES
- We welcome the introduction of the Carbon Border Adjustment Mechanism (CBAM), as an instrument to address the impact of carbon leakage in industries which engage in global or cross-border competition with third countries, and thus level the playing field between EU and non-EU producers.
Improving and clarifying the functioning of CBAM for the case of electricity
- We call on policymakers to consider the specific features of electricity when adjusting CBAM ahead of the definitive phase (i.e. consumption at time of production, trade on Power Exchanges, etc). This implies ensuring methodologies for calculating default values, as well as the conditions to report actual emissions need to be adjusted. Specifically, we recommend:
- Ensuring the formulas for calculating the CO2 emissions factor and default values properly reflect the CO2 content of imports. Ideally, these should be hourly and account for all generation technologies.
- Ensuring the cumulative criteria for reporting actual emissions are workable, in particular, on congestion, PPAs and verification requirements.
- Putting in place clear, simple, robust rules and requirements before the start of the compliance cycle.
- We believe that the applied methodologies and criteria require improvements and further consultation with stakeholders. We urge the Commission to undertake a thorough impact assessment on electricity imports, including a cost-benefit analysis.
- The delays in the publication of the secondary legislation (such as the treatment of the carbon price paid abroad) and the time needed for the sector to implement the rules are impacting commercial decisions. We call on the EC to urgently publish the remaining legislation to improve the visibility for market parties.
- While we welcome the provision regarding the publication of default carbon prices in the Simplification Omnibus, we regret that small, occasional electricity imports do not qualify for exemptions. We call for a non-discriminatory treatment of CBAM sectors and a power sector specific de minimis threshold.
Linking the EU ETS with similar schemes and progressing on market coupling
- We call for linking the EU ETS with similar emissions trading systems in neighbouring countries to ensure a level playing field and more efficient trading.
- We reiterate our call for the EU and UK to start discussions in view of linking their respective ETSs, with negotiations to begin as part of the upcoming EU-UK Summit in May and ideally conclude their negotiations by COP30.
- It is essential to have a recognition of the UK carbon pricing (carbon price support and UK ETS) to prevent double-charging for CO2 emissions in the EU.
- While linking ETSs, an effective mechanism to address price volatility, ensure market stability and transparency should be in place
Following ETS linkage we recommend pursuing the price coupling of electricity markets and implementing it once a level playing field has been ensured (notably regarding carbon pricing). We strongly oppose any delays on price market coupling due CBAM implementation delays. We urge the EU to continue coupling efforts with neighbouring countries considering their benefit for consumers.