EU Climate issues and “carbon leakage”: towards “green growth” around the Baltic Sea

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Climate change has become a vital problem in Europe and the countries around the Baltic Sea Region, BSR. The EU-wide climate ambition with rather stringent climate policies in the member states (and in many non-EU countries) involves a risk of the “carbon leakage”, which occurs when companies based in the EU move carbon-intensive production to countries with less stringent climate policies and/or the EU products are replaced by more carbon-intensive imports.  

Baltic Sea regional strategy
The EU’s Baltic Sea Region Strategy, EUSBSR is a front-runner among four already functioning macro-regional EU’ strategies. The 14th annual forum of the strategy will take place in the beginning of October 2023; one of the main forum’s items is sustainability and climate mitigation efforts. The forum has already formulated four main goals: = exchange of best practices of cooperation, = stronger integration within the Baltic Sea Region and beyond, = forming synergies between various priority areas, and = creating links between the strategy and the general public.

    However, within the main goals is the issue that requires attention and active solutions, i.e. climate change mitigation connected to transforming national growth patterns in the region’s states.
More on Forum in: https://www.eusbsr.eu/annual-forum

    Our Institute actively participated in almost all EUSBSR forums and wrote extensively on main issues under discussion; e.g. more in the following articles concerning the previous 13th Forum:
= https://www.integrin.dk/2022/09/21/sustainability-in-the-baltic-sea-region-eusbsr-in-action/; and = https://www.integrin.dk/2022/09/19/european-strategy-for-the-baltic-sea-region-planning-and-practical-implementation/.

EU’s Carbon Border Adjustment Mechanism, CBAM
European Commission’s implementing regulation adopted on 17.08.2023 concerning Carbon Border Adjustment Mechanism (CBAM) works as a landmark tool to put a fair price on the carbon emitted during the production of carbon intensive goods that are entering the EU, and to encourage cleaner industrial production in non-EU countries. The gradual introduction of the CBAM is aligned with the phase-out of the allocation of free allowances under the EU Emissions Trading System (ETS) to support the decarbonisation industrial development in the member states.

On implementing regulation in: https://taxation-customs.ec.europa.eu/system/files/2023-08/C_2023_5512_1_EN_ACT_part1_v6.pdf

    The CBAM regulation officially entered the states’ legal systems already in mid-May 2023, with some transitional phase from October 2023 followed by the first national reporting period for importers at the end of January 2024.CBAM will be effective until the end of 2025.
By confirming that a price has been paid for the embedded carbon emissions generated in the production of certain goods imported into the EU, the CBAM will ensure that the carbon price of imports is equivalent to the carbon price of domestic production; besides the EU’s climate objectives are not to be undermined and the CBAM shall be compatible with the WTO-rules.

    It will initially apply to imports of certain goods and selected precursors whose production is carbon intensive and at most significant risk of carbon leakage: cement, iron and steel, aluminium, fertilisers, electricity and hydrogen. With this enlarged scope, CBAM will eventually – when fully phased in – capture more than 50% of the emissions in ETS covered sectors. The objective of this transition period is to serve as a pilot and learning period for all stakeholders (importers, producers and authorities) and to collect useful information on embedded emissions to refine the methodology for the definitive period.

    The gradual phasing in of CBAM over time will also allow for a careful, predictable and proportionate transition for EU and non-EU businesses, as well as for public authorities. During this period, importers of goods in the scope of the new rules will only have to report greenhouse gas emissions (GHG) embedded in their imports (direct and indirect emissions), without making any financial payments or adjustments. Indirect emissions will be covered in the scope after the transitional period for some sectors, e.g. cement and fertilisers.
Once the permanent system enters into force on 1 January 2026, importers will need to declare each year the quantity of goods imported into the EU in the preceding year and their embedded GHG. They will then surrender the corresponding number of CBAM certificates. The price of the certificates will be calculated depending on the weekly average auction price of EU ETS allowances expressed in €/tonne of CO2 emitted. The phasing-out of free allocation under the EU ETS will take place in parallel with the phasing-in of CBAM in the period 2026-2034.

   On CBAM in: https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en; and the CBAM regulation in: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=OJ%3AL%3A2023%3A130%3ATOC

 

 

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