COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT Accompanying the document Proposal for a Regulation of the European Parliament and of the Council establishing a carbon border adjustment mechanism
Date: 2021-07-14
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: adaptation to climate change, carbon, carbon neutrality, climate change, emission trading, greenhouse gas, import (EU), originating product, surveillance concerning imports, third country

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   EUROPEAN COMMISSION  Brussels, 14.7.2021  SWD(2021) 644 final  COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT  Accompanying the document  Proposal for a Regulation of the European  Parliament and of the Council   establishing a carbon border adjustment mechanism           {COM(2021) 564 final} - {SWD(2021) 643 final} - {SWD(2021) 647 final} - {SEC(2021) 564 final}  
 
 
Executive Summary Sheet  

Impact assessment on the introduction of a Carbon Border Adjustment Mechanism 

A. Need for action 

What is the problem and why is it a problem at EU level?  

Should  differences  in  levels  of  climate  ambition  persist  worldwide,  the  EU’s  increased  ambitions  will 
reinforce the risk of carbon leakage from the EU. Such leakage is caused by the relocation of production 
of energy-intensive products from the EU to other countries with lower environmental compliance costs, 
and of these same EU products being replaced by more carbon-intensive imports from these countries. In 
that case, the result is an overall increase in global emissions hence undermining the effectiveness of EU 
climate policies. 

In 2005, the EU introduced the EU Emissions Trading System (ETS)  to reduce Greenhouse Gas (GHG) 
emissions  and  fight  against  climate  change.  The  EU  objective  of  climate  neutrality  by  2050  and  the 
decision to raise climate ambition for 2030 lead to a broader reconsideration of existing measures against 
carbon leakage. In particular, free allocation of allowances prevents carbon leakage risks but also weakens 
the carbon price signal for EU industry compared to full auctioning.  As an alternative to free allocation 
the CBAM would ensure that the price of imports reflects more accurately their carbon content.  

What should be achieved? 

The introduction of a CBAM aims at addressing the overarching objective of addressing climate change 
by reducing GHG emissions in the EU and globally.  

More  specifically,  the  measure  intends:  i)  to  address  the  risk  of  carbon  leakage,  ii)  to  contribute  to  the 
decarbonisation objectives in the EU, iii) to encourage producers in third countries who export to the EU 
to adopt low carbon technologies and iv) to ensure that the price of imports reflects more accurately their 
carbon content. 

What is the value added of action at the EU level (subsidiarity)?  

Reducing GHG emissions is fundamentally a trans-boundary issue requiring effective action at the largest 
possible scale. The EU as a supranational organisation is well placed to establish effective climate policy 
on its territory, as it has done with the EU ETS. The only meaningful way to ensure equivalence between 
the  carbon  pricing  policy  applied  in  the  EU’s  internal  market  and  the  carbon  pricing  policy  applied  on 
imports is to take action at the level of the Union. Additionally, the need for minimal administrative costs 
is best achieved by consistent rules for the entire single market.  

B. Solutions 

What are the various options to achieve the objectives? Is there a preferred option or not? If not, 
why? 

Six options were considered including two different taxes (options 1 and 6) and regulation mirroring the 
EU  ETS  for  imports  (the  rest  of  the  options)  on  a  selection  of  basic  materials  (aluminium,  fertilisers, 
cement and iron and steel) and electricity.  All  the measures  are designed to  ensure compliance with  the 
international commitments of the EU: 

Option 1 is an import carbon tax based on a default value reflecting EU emissions average while allowing  
importers  to  demonstrate  their  actual  carbon  intensity  of  their  imported  products.  On  the  other  hand, 

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Option 6 consists of an excise duty on carbon-intensive materials covering consumption of both domestic 
and imported products, along with the continuation of the free allocation of allowances in the EU ETS. 

The rest of the options involve the purchase and surrender of import certificates (CBAM certificates) on 
the  importation  of  a  selection  of  basic  materials  mirroring  the  EU  ETS.  In  option  2,  the  price  of  the 
certificates  would  be  based  on  a  default  value  reflecting  EU  emissions  average,  with  the  option  for 
importers  to  demonstrate  the  actual  carbon  intensity  of  imported  products.  Option  3  assumes  that  the 
carbon price of imports will be based on actual emissions from third country producers rather than on a 
default value based on EU producers’ averages. Both these options assume that the CBAM sectors do not 
receive free allowances under the ETS.  

Option 4 is a variant of option 3. It considers a phase in of the CBAM with a phase out of free allowances 
starting after 2025. Option 5 is another variant with an extension of the scope further down in the value 
chain to cover also the basic materials as part of components and finished goods.  

This  impact  assessment  supports option 4 as the preferred option  for its  positive impacts  and coherence 
with the rest of the Fit for 55 Package.  

What are different stakeholders' views? Who supports which option?  

The public consultation suggested that carbon leakage is already perceived as a reality and that the risk is 
likely  to  increase  in  view  of  the  raising  of  the  EU  climate  ambition.  The  respondents  believe  that  the 
following  policy  options  are  all  at  least  somewhat  relevant  for  the  design  of  a  CBAM  (in  order  of  best 
scored): i) a tax applied on imports on sectors are at risk of carbon leakage (e.g. a border tax or customs 
duty); ii) a carbon tax (e.g. excise or VAT type) at consumption level applied to EU production as well as 
to  imports;  iii)  the  obligation  to  purchase  CBAM  certificates  from  a  specific  pool  outside  the  EU  ETS 
dedicated to imports, which would mirror the EU ETS price or iv) the extension of the EU ETS to imports. 

C. Impacts of the preferred option 

What are the benefits of the preferred option (if any, otherwise of main ones)?                                     

Option  4  provides  clear  benefits  in  terms  of  emission  reductions  in  the  EU  and  reduction  of  the  risk  of 
carbon leakage for the sectors considered. Relative to a scenario, which assumes the continuation of free 
allocation in the EU ETS and the new climate level of ambition, Option 4 would lead to a 1.0% emissions 
reduction  in  the  EU  and  a  0.4%  in  the  rest  of  the  world  in  CBAM  sectors  by  2030.  In  addition,  under 
option 4, carbon leakage is brought down to -29% in 2030.  

What are the costs of the preferred option (if any, otherwise of main ones)?                                    

In  terms  of  economic  impacts,  option  4  would  entail  limited  negative  impacts  on  GDP  (-0.223%)  and 
consumption (-0.558%) and slightly positive effects on investments (0.388%), as compared to the baseline 
in 2030. Regarding social impacts, option 4 foresees small increase in employment by 0,3% in the sectors 
covered  by  CBAM  (as  compared  to  baseline,  in  2030).  Limited  negative  impact  on  employment  is 
envisaged for downstream sectors.  

Finally,  administrative  and  compliance  costs  are  expected  for  businesses  and  authorities.  While  it  is 
difficult  to  assess  these  costs  with  precision,  estimates  show  that  under  option  4,  aggregate  costs  for 
businesses could amount to EUR 9.8 to 14.3 million yearly. Estimated enforcement costs for authorities 
could amount to an aggregate of EUR 15 million per year.  

What are the impacts on SMEs and competitiveness?  

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The  assumptions  and  data  available  do  not  allow  for  a  quantitative  assessment  of  impacts  on  SMEs. 
However,  we  can  expect  higher  relative  compliance  costs  for  small  companies  than  larger  companies. 
Competitiveness would be reinforced as the risk of carbon leakage is reduced. 

Will there be significant impacts on national budgets and administrations?  

No other significant impacts 

Will there be other significant impacts?  

No other significant impacts 

Proportionality?  

Option 4 meets the objectives of the initiative in a proportionate manner.  

D. Follow up 

When will the policy be reviewed?  

The measure will apply first to a reduced number of sectors. It will be reviewed after three years from its 
entry  into  application  in  particular  to  consider  the  extension  of  its  scope  to  more  basic  products  and  to 
semi-finished and finished goods. 

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