EU Plans Major Exemptions for Carbon Border Adjustment Mechanism

Brussels is set to exempt more than 80% of EU businesses eligible for the bloc’s Carbon Border Adjustment Mechanism (CBAM) under proposed reforms outlined by EU tax commissioner Wopke Hoekstra. The plan, which aims to ease compliance burdens, would reportedly release 180,000 of the 200,000 affected businesses from additional obligations.

Hoekstra revealed his intentions in an interview with the Financial Times on February 7, stating that he wants to limit CBAM’s reach to the largest employers while reducing costs and compliance requirements for the majority of businesses.

CBAM is a European Union initiative designed to place a price on carbon emissions associated with carbon-intensive imports, encouraging importers into EU member states to adopt cleaner industrial production processes. The EU defines carbon leakage as occurring “when companies based in the EU move carbon-intensive production abroad to countries where less stringent climate policies are in place than in the EU, or when EU products get replaced by more carbon-intensive imports.”

Addressing the scope of the mechanism, Hoekstra noted: “Less than 20% of the companies in scope are responsible for more than 95% of the emissions in the products.” He added, “It doesn’t do anything to [diminish] the importance of the climate objectives, but it is a way to make life much easier for a wide range of companies across the continent.”

Legal experts have pointed out that the specific mechanism for achieving this exemption has not yet been detailed. Claus Zimmermann, a Brussels-based partner at law firm Ashurst, commented that it is likely the minimum threshold for CBAM applicability will be raised.

“Currently, this threshold is extremely low [at] €150 ($155) per consignment,” Zimmermann explained. “For example, a company importing €170 worth of CBAM-covered products annually is unlikely to contribute significantly to emissions.”

Hoekstra is expected to launch a consultation on the proposal, with hopes that it can be implemented through an ‘omnibus’ simplification act anticipated later this month. The plan must secure approval from a majority of EU member states and members of the European Parliament.

Zimmermann noted the ambitious nature of the timeline, stating, “Although this is the first time this timeline has been set, it is possible.” However, he also acknowledged the potential for delays. “If the timeline is too short, the change will be postponed to the second quarter of 2025, as there is no other framework in the agenda of the Commission that could possibly include CBAM discussions for this quarter.”

Additionally, Hoekstra is expected to conduct a separate review of CBAM later this year. Reports indicate that the mechanism could be extended to additional sectors, including glass, ceramics, pulp, paper, and bulk chemicals.

Hoekstra’s influence on EU tax and climate policy has been widely recognized, and this latest initiative is poised to have a significant impact on regulatory frameworks within the bloc.

By fLEXI tEAM