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EPP and industry reactions

EPP’s CBAM proposal sparks industry debate on sustainability and
competitiveness

The European People's Party (EPP), the largest political group in the European Parliament, has proposed a two-year suspension of the Carbon Border Adjustment Mechanism (CBAM) and other corporate sustainability regulations in a political declaration following their leaders’ retreat on 17th - 18th January. We summarise their proposals, some of the responses and the Redshaw Advisors’ view, below.

EPP's proposal for CBAM suspension

The EPP argues that CBAM and the other sustainability regulations impose excessive bureaucratic burdens on European businesses, particularly small and medium-sized enterprises (SMEs). They suggest limiting the scope of these regulations to companies with more than 1,000 employees, eliminating indirect effects on SMEs, and reducing reporting obligations for large companies by at least 50%.

Additionally, the EPP advocates for reallocating a larger share of revenues from the EU Emissions Trading System (ETS) to support energy-intensive industries, focusing on initiatives such as green hydrogen and carbon capture and storage.

The EPP also calls for greater scrutiny of CBAM, particularly its impact on red tape and the competitiveness of different economic sectors, suggesting a two-year suspension is required to fix the issues.

Industry reactions

In response to the EPP's proposal, several key industry associations have
called for CBAM to press ahead as planned:

  • EUROFER (European Steel Association): EUROFER emphasised the urgent need for CBAM to prevent carbon leakage and support the decarbonisation of the steel industry. They caution that delaying CBAM's implementation could undermine the competitiveness of the European steel sector. However, EUROFER also highlights issues with CBAM’s current design that need addressing, such as solutions to preserve European exports, stricter anti-circumvention rules, and an extension of CBAM's scope to include steel-intensive downstream sectors. According to EUROFER, these changes must be implemented this year, well before the definitive period start in 2026.
  • CEMBUREAU (European Cement Association): CEMBUREAU highlighted that the European cement industry is investing significantly in decarbonisation projects, which require regulatory
    certainty and policy support. They argue that a two-year delay in CBAM's implementation would pose major risks to ongoing EU decarbonisation investments and the broader competitiveness of the cement sector. While acknowledging the need for targeted improvements to CBAM (for example to minimise the risks of fraud and circumvention), CEMBUREAU insists that the definitive phase should commence in 2026 as planned.

Implications for your business

Redshaw Advisors will monitor the situation as it evolves, but on first glance, the EPP’s proposal looks unlikely to gain much traction.

Firstly, CBAM has already started with the transition phase commencing in 2023. Therefore, businesses are already subject to the extra bureaucracy that CBAM brings. It is unclear whether a two-year pause means that the start of the definitive period will be pushed back by two years, or an immediate suspension would be implemented.

Secondly, it is not clear how limiting those rules to companies with over 1,000 employees would be implemented, as smaller companies with higher tonnes of imports would be favoured over larger companies with smaller imports, potentially creating just as many market distortions and complexities as it is trying to fix.

Additionally, the EU have committed to a net zero target in 2050 with ambitious interim target in 2030 and 2040 (still to be decided). To meet the net zero target, EU ETS exposed sectors will be required to do much of the heavy lifting with analysts’ projecting the EU ETS cap will hit zero by 2040. Therefore, to avoid carbon leakage, the EU must shift away from free allocation to an alternative mechanism, otherwise there will come a point where there will simply not be enough allowances to meet the needs of those entitled to free allocation. Delaying the implementation of CBAM will
potentially cause issues further down the line.

Finally, the EU have always been very explicit in their desire for CBAM to aid the spread of carbon pricing globally. There are already some signs of success with Türkiye and India, to name just two countries, already progressing plans to implement an ETS as a consequence of the EU CBAM. Delaying CBAM implementation in the EU would likely have knock-on effects for decarbonisation efforts around the world.

Should you have any questions or require assistance in navigating this evolving landscape, please do not hesitate to contact us.


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