Common position on CBAM

The Norwegian Confederation of Trade Unions (LO), Industri Energi, The United Federation of Trade Unions (Fellesforbundet), The Federation of Norwegian Industries (Norsk Industri) and the Confederation of Norwegian Enterprise (NHO) welcome the EU’s intention of securing a level playing field between European industry which has a price on carbon with industries in third countries which do not have a price on carbon. However, we are concerned that certain elements of the Commission’s current CBAM proposal may not adequately address European industries’ need for carbon leakage protection. We would therefore suggest that the following comments and recommendations are taken into consideration.

A global solution to a global challenge: European industry is constantly reminded of the challenges that carbon leakage represents both for industrial activity and climate policy. We believe the ultimate solution to this challenge is a global one, in which trading blocs establish a framework which ensures both a level playing field for industry and an ambitious enforcement of the climate policies needed to reach our common objectives under the Paris agreement. The agreement reached on Article 6 during COP26 in Glasgow is a significant step in the right direction.

The importance of ensuring adequate carbon leakage protection: Norwegian electro-intensive industries are heavily dependent on access to cost-efficient renewable hydropower, which ensures that Norwegian industries can be both cost-competitive and green leaders at the same time. The CBAM as proposed by the Commission will gradually phase out existing carbon leakage protection measures such as free allowances under the EU ETS. The existing scheme for indirect cost compensation is not immediately affected as indirect emissions are not proposed to be part of the CBAM’s scope in its first phase. However, it would be affected in the later stages of implementation. Adequate carbon leakage protection is crucial to enable European industries to transition to greener production in line with the EU’s 2030 and 2050 targets.

The Commission was right when proposing not to include indirect emissions in the first phase as a CBAM based on embedded indirect emissions cannot ensure carbon leakage protection for indirect CO2 costs: European production of key products and goods has considerably reduced over the last 10 to 15 years, to the benefit of imports from third countries with higher embedded emissions. However, the challenges faced by European industries are not only related to carbon pricing, but also to high energy prices and other costs. While the proposed CBAM will address the carbon intensity embedded in imported goods, the existing scheme for indirect cost compensation addresses CO2 costs arising in the electricity price due to marginal pricing. From the perspective of Norwegian industry, the CBAM will not be able to shield electro-intensive industries against indirect CO2 costs in the electricity market, including in Norway which has a 90+% share of renewable electricity. If the scheme for indirect cost compensation is removed under the CBAM, the competitiveness of Norwegian and European industries may be hampered.

We would ask European policy makers to take into account the following recommendations during their work on the CBAM Regulation:

• Ensuring adequate carbon leakage protection: The scheme for free allowances cannot be discontinued unless a robust and precise alternative covering the entire production chain from raw material to final product is introduced. A CBAM based on indirect emissions will not protect European industries from indirect CO2-costs, and thus CBAM cannot replace the current CO2-compensation scheme. We therefore strongly advise co-legislators to ensure that carbon leakage protection measures designed to compensate for indirect CO2 costs in the electricity market remain in place also under the CBAM. If the CBAM is introduced with the intention of replacing existing carbon leakage measures, then it is of paramount importance for industry based on non-fossil power generation in Europe that indirect emissions are not included in CBAM until indirect CO2 costs in Europe are substantially lower than the current level. 

• Introducing an export solution: The discontinuation of free allowances under the EU ETS will result in increased production costs for European industries without alternative production methods, as compared to those in third countries. Those European industries which export goods to third countries would lose competitiveness, regardless of whether their goods have lower embedded emissions. The introduction of a mechanism to refund the CO2 costs for export goods is necessary under the CBAM in order to ensure a level playing field between European and third-country producers.

• Addressing risks of circumvention: The CBAM as proposed by the Commission may incentivise third countries to export the products with the lowest carbon footprint to the European market, without addressing the total carbon footprint of their domestic Such circumvention would result in the CBAM having no effect on global emissions and rather presents a risk for European lower-carbon products becoming uncompetitive while emissions from industry in third countries increase.

• Applying the CBAM to full production chains: A CBAM applied only to parts of European production chains, as proposed by the Commission as a starting point, would result in increased costs for European producers buying raw materials from third countries to produce final products in Europe. At the same time, it would be possible to import final products from third countries without paying the CBAM price. This would result in a loss of competitiveness for European producers of final In order to effectively address carbon leakage, the CBAM should to the greatest possible extent be applied to full production chains.

• The CBAM must be compatible with WTO rules: This is important to avoid countermeasures from important trading partners with negative consequences for European companies and global competitiveness.

• Revenue from the CBAM should be returned to European businesses to facilitate transition: Inspired by the EU Innovation Fund, the revenue raised from the CBAM should be used to finance investments in sustainable development supporting industry efforts to meet the EU’s climate objectives. 

• Ensuring adequate time for information gathering before full implementation: It is of crucial importance that the CBAM is introduced gradually and with careful, continuous assessment of its impact on European industries. In this regard, it is positive that the Commission has foreseen the need for a test phase during which information will be gathered to inform the next steps of the implementation of the mechanism.