France is considering a controversial move to include cement importers in the EU Emissions Trading System (EU ETS) after 2020. The proposal, likely to be presented via a non-paper following the December UN climate negotiations, received a mixed reception during a seminar hosted by the Centre for European Policy Studies.
Under the suggestion, cement importers would be required to surrender an equivalent amount of EU carbon allowances to match the quantity of cement that an average EU producer would need to produce. This approach could facilitate a transition to full auctioning of carbon allowances in the cement sector, potentially freeing up more allowances to support manufacturers in other carbon leakage-exposed sectors.
The proposal aligns with an idea proposed in May by the High-Level Working Group on Competitiveness and Growth, which reintroduced the discussion of imposing border carbon tariffs. While some believe these tariffs could enhance the effectiveness of EU climate policy, others express concerns about potential trade conflicts. The proposal would require support from most EU member states and the European Parliament to be included in post-2020 EU ETS reforms.
Participants at the seminar offered different perspectives, with one expressing caution based on previous attempts to extend the EU ETS beyond borders, such as with aviation. Another participant viewed the initiative as potentially revolutionary, while concerns were raised regarding its compliance with World Trade Organization regulations.
France believes the measure would be compatible with WTO rules, referencing a recent study by Climate Strategies. The cement industry has shown interest in pursuing this idea, considering that cement has a shorter downstream cycle compared to other materials like steel, which allows less opportunity for exports.
Cement producers within the EU face competition from companies in North Africa, Turkey, Ukraine, and Russia, which lack carbon pricing policies. France previously proposed imposing tariffs on cement importers, an idea supported by the EU cement producer association Cembureau.
Some experts argue that the effectiveness of EU climate policy is limited without carbon tariffs, as lawmakers are hesitant to impose strict measures domestically, fearing a negative impact on domestic industries competing internationally.
As the EU ETS undergoes Phase 4 (2021-2030), manufacturers are facing increasing costs, as the European Commission intends to keep the share of actionable allowances at 57%, resulting in a diminishing number of free units for the industry. While the UK and several member states support a tiered approach to free allocation, industry lobbyists are exploring avenues to secure a more generous share of free permits, including tapping into the auctioning pot.
France supports the tiered approach but also advocates for post-2020 ETS rules to consider the development of carbon pricing worldwide, which could impact the level of carbon leakage protection measures for EU emitters.
