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Brussels will fine importers no more than €50 a tonne of carbon emissions for missing reporting requirements during the trial period of the world’s first carbon border tax.
The planned penalties, which could even be as low as €10 a tonne, were announced yesterday as part of legislation laying out how the EU’s so-called carbon border adjustment mechanism (CBAM) will work when it comes into effect for an 18-month trial period from October 1.
The tax, which will be introduced in 2026, is designed to create a level playing field between EU companies that must pay a carbon price for their emissions and businesses importing from countries with lower or no charges for emissions.
Importers will not be charged the tax, which will be based on the bloc’s carbon price, during the trial phase but will face penalties if they do not comply with the reporting requirements.
But the CBAM’s low penalty charges and potential flexibility have been criticised by EU industry executives.
“We are concerned that the penalty level is worryingly low, coupled with a lack of strong enforcement requirements. The regulation has a lot of derogations for importers, which risks opening the door for circumvention,” said Adina Georgescu, energy director at metals industry body Eurometaux.
S&P Global analysts estimate that the CBAM will raise $80bn for the bloc annually by 2040.
Importers of steel and cement products will have to disclose their first reports of carbon emissions caused by the production of their goods by January 31, according to the rules published on Wednesday. Other products covered by the trial phase include electricity, hydrogen, fertilisers and aluminium.
The measure caused consternation among many of the EU’s trading partners when it was first announced, with countries such as India and Brazil saying that it violated World Trade Organization rules.
Countries including the US and South Africa have said their markets could be at risk of being flooded by cheap imports from companies that will be unwilling to pay the EU tax.
Domien Vangenechten, senior policy adviser at the climate think-tank E3G, said the penalties were set at €10-50 a tonne to “incentivise importers to report on their emissions” and would likely be much higher when the CBAM came fully into force.
EU carbon permits are trading at around €88 a tonne of emissions. The price has more than tripled in the past three years as Brussels has unveiled carbon-cutting rules and reduced the number of free permits given to polluters.
Executives from industries hit by CBAM said too much flexibility had been left for the EU’s 27 member states to decide on how to implement the measures and that fines for importers should be the same as those under the bloc’s emissions trading system (ETS), which are currently €100 a tonne of unreported carbon emissions.
The European Commission has indicated that fines when CBAM is fully implemented will be in line with those imposed under the ETS.
Vangenechten said the complexity of the rules, which also laid out how emissions should be calculated and reported, showed that what the EU was trying to do was “super complex” and could hit small producers in developing nations.
“It is a big administrative burden that some will be better able to deal with than others. The EU has to some extent acknowledged that . . . but I haven’t seen much proof of that being addressed,” he said.
The commission has argued that the CBAM will encourage countries to launch their own emissions trading systems. Turkey and Indonesia have recently announced they will introduce a carbon price.