COMMISSION STAFF WORKING DOCUMENT Subsidiarity Grid 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

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 14.7.2021  SWD(2021) 647 final  COMMISSION STAFF WORKING DOCUMENT Subsidiarity Grid 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) 644 final} - {SEC(2021) 564 final}  
 
 
Subsidiarity Grid 

1.  Can the Union act? What is the legal basis and competence of the Unions’ intended action? 

1.1 Which article(s) of the Treaty are used to support the legislative proposal or policy initiative? 

Articles  191  to  193  of  the  Treaty  on  the  Functioning  of  the  European  Union  (‘TFEU’)  confirm  and 
specify  EU  competencies  in  the  area  of  climate  change.  The  legal  basis  for  this  proposal  is  Article 
192(1) TFEU. In accordance with Articles 191 and 192(1) TFEU, the EU shall contribute to the pursuit, 
inter  alia,  of  the  following  objectives:  preserving,  protecting  and  improving  the  quality  of  the 
environment,  promoting  measures  at  international  level  to  deal  with  regional  or  worldwide 
environmental problems, and in particular combating climate change. 

1.2 Is the Union competence represented by this Treaty article exclusive, shared or supporting in 
nature? 

In the case of environment, the Union’s competence is shared.  

Subsidiarity does not apply for policy areas where the Union has exclusive competence as defined in 
Article  3  TFEU1.  It  is  the  specific  legal  basis  which  determines  whether  the  proposal  falls  under  the 
subsidiarity  control  mechanism.  Article  4  TFEU2  sets  out  the  areas  where  competence  is  shared 
between the Union and the Member States. Article 6 TFEU3 sets out the areas for which the Unions 
has competence only to support the actions of the Member States. 

2.  Subsidiarity Principle: Why should the EU act? 

2.1 Does the proposal fulfil the procedural requirements of Protocol No. 24: 

-  Has there been a wide consultation before proposing the act? 
- 

Is  there  a  detailed  statement  with  qualitative  and,  where  possible,  quantitative  indicators 
allowing an appraisal of whether the action can best be achieved at Union level? 

The Commission engaged in an array of public and targeted consultations, for the preparation of this 
proposal. An inception impact assessment took place between 4 March and 1 April 2020 with the aim 
to  collect  initial  feedback  on  the  project.  An  open  public  consultation  was  also  placed  on  the 
Commission website, from 22 July to 28 October 2020, aiming to gather opinions from citizens and 
organisations on the  justifications, objectives,  potential design and scope  as well as impacts of the 
initiative. In addition to these, the Commission services engaged in extensive bilateral consultations 
with  public  authorities  within  the  EU  and  third  countries,  as  well  as  with  business  associations, 
individual companies and NGOs. 

The  impact  assessment  is  explicit  in  stating  that  the  only  meaningful  way  to  ensure  equivalence 
between the carbon pricing policy applied in the EU’s internal market -by the EU ETS- and the carbon 
pricing  policy  applied  on  imports  is  to  take  action  at  the  level  of  the  Union.  CBAM  is  inherently  a 
border measure and therefore, there is clear added value of placing the intervention at the EU level, 
although  its  implementation  and  enforcement  will  be  better  performed  at  Member  States  level. 
These arguments are substantiated qualitatively in the impact assessment. 

1 https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:12008E003&from=EN  
2 https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:12008E004&from=EN  
3 https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:12008E006:EN:HTML  
4 https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:12016E/PRO/02&from=EN  

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The explanatory memorandum of the proposal and the impact assessment, under chapters 3.2 and 
3.3, contain sections on the principle of subsidiarity. 

2.2 Does  the  explanatory  memorandum  (and  any  impact  assessment)  accompanying  the 
Commission’s  proposal  contain  an  adequate  justification  regarding  the  conformity  with  the 
principle of subsidiarity? 

Climate change is, by its very nature, a trans-boundary challenge that cannot be solved by national or 
local action alone. Coordinated EU action can effectively supplement and reinforce national and local 
action  and  enhances  climate  action.  Coordination  of  climate  action  is  necessary  at  EU  level  and, 
where possible, at global level, and EU action is justified on grounds of subsidiarity.  

long-term  climate  objectives,  while  ensuring  fairness  and  environmental 

Since 1992, the EU has worked to develop joint solutions and to drive forward global action to tackle 
climate change. More specifically, action at EU level should aim to provide for cost effective delivery 
integrity.  The 
of 
establishment of a robust governance of the EU 2050 climate-neutrality objective will help to ensure 
that  the  EU  remains on  track  to  achieve  the  objective.  Action  on  climate change  adaptation  at  EU 
level enables the integration of adaptation policies and measures in key sectors, governance levels 
and EU policies. 

There exists already a harmonised carbon pricing system at EU level: the EU ETS. The EU ETS applies 
to  sectors  that  are  energy-intensive  and  may  be  subject  to  international  competition.  In  order  to 
ensure  a  well-functioning  single  market  when  the  EU  increases  its  climate  ambition,  it  is  essential 
that a level playing field is created for the relevant sectors in the internal market. The single effective 
way to do this is by taking action at the level of the EU. Any initiative needs to be designed in a way 
that provides importers,  regardless of country of origin and port of entry or destination within the 
EU,  with  uniform  conditions  and  incentives  for  carbon  emission  reductions  that  are  equivalent  to 
those of domestic producers.  

Additionally,  the  need  for  minimal  administrative  costs  is  best  achieved  by  establishing  consistent 
rules for the entire single market, further underlining the added value of an intervention at the EU 
level.  Nevertheless,  for  the  sake  of  minimising  costs  and  ensuring  effective  action,  national 
authorities  should  implement  and  enforce  of  the  regulation,  while  a  body  at  EU  level  could 
coordinate  their  actions  and  provide  assistance.  This  architecture  would  draw  the  lessons  of  the 
successful experience of the EU ETS. 

Moreover,  as  CBAM  is  inherently  a  border  measure  there  is  clear  added  value  of  placing  the 
intervention at the EU level in view of the fact that external trade is an exclusive competence of the 
EU. At the same time, the CBAM also needs to be implemented consistently by Member States in the 
EU market and in view of its close links to the EU ETS, there is further justification of intervention at 
EU level. The public consultation has confirmed the added value of taking action on the CBAM at the 
EU  level.  In  particular,  stakeholders  agree  that  a  CBAM  is  needed  due  to  existing  differences  of 
ambition between the EU and the rest of the world and in order to support the global climate efforts. 
In  addition,  in  view  of  the  EU’s  position  in  international  trade,  if  it  introduces  a  CBAM  the 
environmental effect on international climate ambitions will be most effective as a potential example 
to follow. 

2.3 Based  on  the  answers  to  the  questions  below,  can  the  objectives  of  the  proposed  action  be 

achieved sufficiently by the Member States acting alone (necessity for EU action)? 

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This proposal aims to reduce GHG emissions in the EU and avoiding that these emissions reduction 
efforts  are  offset  by  emissions  increase  outside  the  EU,  as  a  result  of  carbon  leakage,  as  well  as 
ensure  that  the  price  of  imports  into  the  EU  reflect  more  accurately  their  carbon  content.  This 
problem has a cross-border dimension, so it cannot be tackled independently by Member States. Due 
to its environmental nature and in order to avoid trade diversion, CBAM should be more efficient if 
designed at EU-level in a uniform way, mirroring EU ETS and designed in a compatible way with WTO 
rules.  

(a)  Are  there  significant/appreciable  transnational/cross-border  aspects  to  the  problems  being 

tackled? Have these been quantified? 

The problem addressed by this proposal is how to succeed in reducing GHG emissions in the 
EU  and  avoiding  that  these  emissions  reduction  efforts  are  offset  by  emissions  increase 
outside the EU, as a result of carbon leakage. This risk increases as the EU raises the ambition 
of its climate policies above that of its trading partners. Therefore, the scale of the problem is 
commensurate to the raising of the EU climate ambition relative to that of others. 

Based on the above, CBAM as a measure –like the problem it addresses - is cross-border one 
aiming to ensure that the price of imports into the EU reflect more accurately their carbon 
content.  The  impact  assessment  studied  in  detail  the  transnational  aspects to the  problem 
including  impacts  on  imports  and  exports  of  goods  subject  to  CBAM,  as  well  as  those 
indirectly related through upstream or downstream processes. Efficiency and administrative 
impacts on cross-border flows of goods were also studied in the impact assessment.  

(b)  Would national action or the absence of the EU level action conflict with core objectives of 

the Treaty5 or significantly damage the interests of other Member States? 

National action would conflict with core objectives of the Treaty, including the ones in Article 
32,  which  establishes  in  letter  (c)  ‘the  objective  of  avoiding  distorting  conditions  of 
competitions  within  the  custom  union’  and  in  letter  (d)  ‘the  need  to  avoid  serious 
disturbances  in  the  economies  of  Member  States’.  These  objectives  would  be  impaired  if 
Member  States  were  left  free  to  adopt  individual  decisions  beyond  implementation  and 
enforcement in a matter that involves a number of provisions concerning goods imported in 
the Customs Union and a number of references to the custom union code.  

Moreover,  should  Carbon  Border  Adjustment  not  be  applied  in  a  uniform  way,  it  would 
incentivise  behaviours  resulting  in  trade  diversion  and  forum  shopping,  as  third  country 
exporters  would  import  goods  through  EU  jurisdictions  applying  CBAM  in  the  most  lenient 
way. 

Conversely,  the  absence  of  EU  level  action  would  significantly  damage  the  interests  of 
Member States as established in Article 191 TFEU as the objectives of ‘preserving, protecting 
and improving the quality of the  environment’  and of avoiding carbon  leakage can only  be 
pursued at EU level. 

(c)  To  what  extent  do  Member  States  have  the  ability  or  possibility  to  enact  appropriate 

measures? 

5 https://europa.eu/european-union/about-eu/eu-in-brief_en  

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Member States do not have the possibility to enact appropriate measures. If they applied on 
their own a form of CBAM, they would very seriously risk  diverting  trade  towards Member 
States  not  doing  so.  Moreover,  CBAM  is  designed  with  a  view  to  mirror  the  EU  emission 
trading  system,  an  EU  wide  and  harmonised  instrument,  in  terms  of  price  of  certificates, 
phasing out of existing carbon leakage measures and exclusion of third countries.  

(d)  How  does  the  problem  and  its  causes  (e.g.  negative  externalities,  spill-over  effects)  vary 

across the national, regional and local levels of the EU? 

Member States are exposed to the risk of carbon leakage to different extent. This exposure 
would  depend  on  whether  their  economies  include  industries  covered  by  the  EU  ETS  and 
more importantly on whether they host particular industrial installations in sectors that are 
at  risk  of  carbon  leakage.  Whether  a  Member  State  is  at  EU’s  external  border  it  may  also 
impact its exposure to carbon leakage.   

Moreover,  differing  exposures  to  the  risk  of  carbon  leakage  would  provide  limited 
justification  for  action  at  national  level.  Carbon  emissions  are  not  localised  and  like  the 
EU ETS, the CBAM can achieve greater efficiency when uniformly applied on a broader scale.   

(e)  Is the problem widespread across the EU or limited to a few Member States? 

Climate change and the need to address it is widespread across the EU.  

(f)  Are Member States overstretched in achieving the objectives of the planned measure? 

No, the measure is proposed to support climate policy in the EU and in Member States. 

(g)  How  do  the  views/preferred  courses  of  action  of  national,  regional  and  local  authorities 

differ across the EU? 

The  European  Council  invited  the  Commission  to  propose  a  CBAM  to  ensure  the 
environmental integrity of EU policies and avoid carbon leakage in a WTO-compatible way6. 
As agreed by the European Parliament, the Council and the Commission, the CBAM will also 
form  part  of  new  own  resources  feeding  into  the  EU’s  budget7.  The  European  Parliament 
adopted a report on a WTO-compatible EU carbon border adjustment mechanism8. National 
authorities of several Member States also have called for the implementation of CBAM. 
Regional or local authorities have expressed very few views on CBAM.  

2.4 Based  on  the  answer  to  the  questions  below,  can  the  objectives  of  the  proposed  action  be 
better achieved at Union level by reason of scale or effects of that action (EU added value)? 

Reducing  GHG  emissions  is  a  trans-boundary  issue  that  requires  effective  action  at  the  largest 

6 European Council. (2020). Conclusions of the European Council of 11 December 2020. (EUCO 22/20 CO EUR 
17 CONCL 8). 
7 Interinstitutional Agreement of 16 December 2020 between the European Parliament, the Council of the 
European Union and the European Commission on budgetary discipline, on cooperation in budgetary matters 
and on sound financial management, as well as on new own resources, including a roadmap towards the 
introduction of new own resources (OJ L 433I , 22.12.2020, p. 28). 
8  European Parliament resolution of 10 March 2021 towards a WTO-compatible EU carbon border adjustment 
mechanism (2020/2043(INI)) 

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possible scale. The EU is well-placed to establish effective climate policy. The introduction of an EU-
wide  CBAM  will  create  a  common  and  uniform  framework  to  ensure  an  equivalence  between  the 
carbon  pricing  policy  applied  in  the  EU’s  internal  market  and  the  carbon  pricing  policy  applied  on 
imports and it will be beneficial for all.  

(a)  Are there clear benefits from EU level action?  

Yes. 

(b)  Are there economies of scale? Can the objectives be met more efficiently at EU level (larger 

benefits per unit cost)? Will the functioning of the internal market be improved? 

Yes. 

(c)  What  are  the  benefits  in  replacing  different  national  policies  and  rules  with  a  more 

homogenous policy approach? 

The  introduction  of  a  CBAM  will  not  replace  national  policies,  but  will  create  a  common 
framework at EU-level to ensure an equivalence between the carbon pricing policy applied in 
the EU’s internal market and the carbon pricing policy applied on imports. 

(d)  Do the  benefits  of EU-level action outweigh the loss of competence  of the Member States 
and the  local and regional authorities (beyond the costs  and benefits of  acting at national, 
regional and local levels)? 

Reducing  GHG  emissions  is  fundamentally  a  trans-boundary  issue  that  requires  effective 
action at the largest possible scale. The EU, as a supranational organisation is well-placed to 
establish  effective  climate  policy  in  the  EU,  like  it  has  done  with  the  EU  ETS.  An  EU-wide 
CBAM is therefore beneficial for all EU Member States and local and regional authorities. This 
domestic policy also has transnational aspects, strictly connected with the global dimension 
of climate change and the objective of curbing global emissions. In particular, the proposed 
regulation  involves  several  custom  aspects  that  falls  in  the  EU  exclusive  competence,  e.g. 
custom  regimes, 
import  regulations,  uniform  application  of  obligations  by  custom 
authorities, and agreements with third countries.  

(e)  Will there be improved legal clarity for those having to implement the legislation? 

Yes, since it is a new measure applying to the whole internal market, a single set of rules will 
ensure uniform application, which will be conferred to Member States authorities. 

3.  Proportionality: How the EU should act 

3.1  Does  the  explanatory  memorandum  (and  any  impact  assessment)  accompanying  the 
Commission’s proposal contain an adequate justification regarding the proportionality of the 
proposal  and  a  statement  allowing  appraisal  of  the  compliance  of  the  proposal  with  the 
principle of proportionality? 

The proposal seeks to address the challenge of reducing GHG emissions in the EU while at the same 
time avoiding that these emissions reduction efforts are offset by emissions increase outside the EU. 
The policy choices therefore are clearly dictated by the aim to achieve the objectives of the CBAM, 
namely  to  address  the  risk  of  carbon  leakage  in  order  to  fight  climate  change  by  reducing  GHG 
emissions in the EU and globally. 

The proposed product coverage of CBAM is framed by the sectors and emissions covered by the EU 

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ETS  and  the  CBAM  scope  should  be  laid  down  by  a  reference  to  certain  goods  by  way  of  their 
classification in the Combined Nomenclature. This serves the motivation for the measure, namely to 
ensure that imports of energy intensive products into the EU are on equal footing with EU products 
in terms of EU ETS carbon pricing and to mitigate risks of carbon leakage. CBAM, as an alternative to 
free  allocation of EU ETS allowances,  builds on the logic of the EU ETS starting with sectors where 
emissions are the highest and therefore where it would matter most. 

The  carbon  content  of  products  is  an  essential  element  of  the  CBAM  as  it  indicates  the  carbon 
dioxide  equivalent  emissions  released  during  their  production  abroad.  This  is  used  to  ensure  that 
imported  products  are  treated  no  less  favourably  than  domestic  products  produced  in  EU  ETS 
installations. As installations covered by the EU ETS are subject to a carbon price assessed on their 
actual emissions, imported products  in the scope  of CBAM should also be  assessed based on their 
actual  GHG  emissions.  However,  such  an  approach  may  involve  high  administrative  costs  in  the 
beginning and therefore for an initial transitory period it is proposed to use default values with the 
possibility for the importers to demonstrate that their products were produced with actual emissions 
lower than the default value, and therefore be subject to a lower CBAM obligation. 

As  regards  the  administration  of  the  measure,  the  choice  of  empowering  national  climate  CBAM 
Authorities  is  meant  to  minimise  administrative  costs  associated  with  this  task  and  increase 
effectiveness.  This will require, however, in ensuring proper  collaboration and coordination of the 
assessment of declarations of embedded emissions in imported goods at EU level. 

3.2 Based  on  the  answers  to  the  questions  below  and  information  available  from  any  impact 
assessment,  the  explanatory  memorandum  or  other  sources,  is  the  proposed  action  an 
appropriate way to achieve the intended objectives? 

The legal instrument of a Regulation was  chosen to ensure  direct applicability,  uniform application 
and uniform enforcement throughout the EU, in order to avoid trade diversion and forum shopping. 
With  a  view  to  ensure  a  well-functioning  measure  meeting  its  climate  objectives,  a  decentralised 
approach with some coordination and support functions at central level is envisaged in the proposal. 
Setting up a central CBAM body  together with the national climate bodies will minimize the relevant 
administrative  costs  associated  and will ensure a coherent  application of  CBAM to all imports.  The 
revenues will finance the implementation costs of CBAM as well as generate new own resources for 
the EU.  

(a)  Is the initiative limited to those aspects that Member States cannot achieve satisfactorily on 

their own, and where the Union can do better? 

Yes. 

(b)  Is  the  form  of  Union  action  (choice  of  instrument)  justified,  as  simple  as  possible,  and 
coherent with the satisfactory achievement of, and ensuring compliance with the objectives 
pursued  (e.g.  choice  between  regulation,  (framework)  directive,  recommendation,  or 
alternative regulatory methods such as co-legislation, etc.)? 

The objectives of the present  proposal can best be pursued through a Regulation. This will 
ensure  direct  applicability  of  a  number  of  provisions  concerning  goods  imported  in  the 
Customs  Union,  included  on  custom  regimes,  territorial  application,  anti-circumvention 
provisions,  or  sanctions.  Moreover,  this  Regulation  requires  uniform  and  consistent 
application  and  enforcement  throughout  the  EU  by national  authorities  in  order  to  pursue 
the objectives of Articles 32 and 207 TFUE. Any different legal instrument would impair the 

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needed  uniform  application  throughout  the  European  Union  by  disrupting  competition 
among Member States and creating unwanted effect of trade diversion and forum shopping. 
As an example, by choosing the legal instrument of a directive, foreign companies could try 
to  take  advantage  of  different  implementation  rules  of  carbon  border  adjustment    in 
different  member  states  by  choosing  to  import  and  release  products  into  free  practice  in 
Member  States  applying  a  more  lenient  attitude  in  terms  of  verification  of  embedded 
emissions, sanctions, or guarantees. 

(c)  Does the Union action leave as much scope for national decision as possible while achieving 
satisfactorily the objectives set? (e.g. is it possible to limit the European action to minimum 
standards or use a less stringent policy instrument or approach?) 

In  order  to  ensure  a  well-functioning  measure  meeting  its  set  climate  objectives,  a 
decentralised approach is envisaged. On the one hand, certain tasks where a single approach 
is key such as the publication of the price of certificates and the establishment default values 
will be carried out by the Commission, which will also play a role in coordination and advice. 
On  the  other  hand,  national  climate  authorities  will  take  care  of  implementation  and 
enforcement tasks, such us the sale of CBAM certificates, the  reimbursement requests, the 
application  of  penalties.  Such  system  will  ensure  a  coherent  application  of  the  CBAM 
obligations to all imports of the relevant goods in a transparent way, safeguarding the EU’s 
trade  obligations  and  at  the  same  time  ensuring  an  effective  application  as  regards  the 
climate effectiveness of the measure.  

(d)  Does  the 

initiative  create  financial  or  administrative  cost  for  the  Union,  national 
governments,  regional or local authorities, economic operators or citizens? Are these costs 
commensurate with the objective to be achieved? 

The implementation of CBAM will create limited administrative costs for the Union.  The EU 
will  benefit  from  the  increased  revenues  stemming  from the  CBAM,  which will  finance  the 
implementation  costs  related  to  the  measure  and  borne  by  Member  States’  authorities.  It 
will also generate new own resources for the EU.  

In  terms  of  impacts  to  economic  operators  and  citizens,  CBAM  would  entail  very  limited 
negative impacts on GDP, investments and consumption in the EU as compared to the case 
of  raising  the  EU  climate  ambition  in  its  absence.  At  the  same  time,  by  capturing  carbon 
leakage  CBAM  would  limit  output  losses  in  the  sectors  to  which  it  would  apply  in  view  of 
raising  the  level  of  climate  ambition.  It  would  also  contribute  to  reduction  in  emissions  in 
both the EU and in the rest of the world in CBAM sectors by 2030.  

(e)  While  respecting  the  Union  law,  have  special  circumstances applying  in  individual  Member 

States been taken into account? 

Yes  as  part  of  the  impact  assessment  the  Commission  analysis  reflected,  to  the  extent 
possible, the economic and industrial structures of individual Member States as well as their 
trade  flows  with  third  countries.  In  this  context,  individual  specificities  and  differences 
between  Member  States  were  accounted  for  in  the  assessment  of  impacts  by  the 
Commission. 

7