As Europe’s leading fertilizers producer, Yara recognises that the issue of imported carbon intensive goods must be tackled
At Yara, we believe that a Carbon Border Adjustment Mechanism (CBAM) that is fit for purpose should account for trade flows to and from the European market. This will enable both EU industries to decarbonize, and it will bring trading partners to match the same climate and environmental objectives.
Thanks to CBAM, all products on the Internal Market – whether made locally or imported from outside the European Economic Area (EEA) – will face the same carbon cost. However, the current CBAM is incomplete and needs to be improved. As it is currently designed, it would create a level playing field only for imports, without considering EU (European) exports in global markets. These would become uncompetitive towards non-EU producers, with laxer or non-existent climate legislation.
A decreased competitiveness of EU low-carbon exports in the global marketplace would move greenhouse gas (GHG) emissions out of the EU, increase carbon leakage and, ultimately, undermine the objective of the CBAM measure.
Simply moving EU emissions elsewhere will not solve the climate crisis. We must do more.
What a CBAM export solution should look like
A fit for purpose CBAM should rely on three pillars:
Protecting EU exports competitiveness
Without an export mechanism in CBAM, the reduction of free allowances, and the rising carbon prices, the EU Fertilizers industry will face a dramatic increase in production costs in Europe, posing a serious risk to the competitiveness of EU industries in the global market.
For instance, with a carbon price set at 80EUR/tonne carbon dioxide equivalent (CO2eq), European fertilizers will experience a 20 to 45% price increase (depending on the product and nitrogen content).
EU/EEA low-carbon products carry the cost of their emissions when competing with goods produced in third countries with loose (or non-existent) carbon pricing rules.
CBAM will add further costs for EU industries when exporting and will lead to product in global markets being substituted with goods that have a higher carbon footprint, increasing overall GHG emissions and carbon leakage.
Ultimately, a robust CBAM should not move EU emissions elsewhere, but rather enable decarbonization on a global scale. This is particularly true for the Fertilizers sector, where EU products have -50% carbon footprint compared to non-EU products.
A WTO compatible export mechanism is possible!
A successful CBAM must remain within the World Trade Organisation (WTO) rules. These rules prevent governments from subsidizing exports to undercut competitors, or from incentivizing exports over domestic sales. Our legal analysis shows possibilities exist for EU exporters to be exempted from CBAM and ETS obligations.
One solution is to partially exempt exporters from the requirement to surrender emission allowances under the Emissions Trading System (ETS). Such an adjustment of the regulatory obligation avoids carbon leakage on the global market, advancing the objective of both ETS and CBAM. Alternatively, CBAM could be reframed as a carbon cost for both imports and goods produced domestically, while exempting exports which would continue to receive free allocation. This would make CBAM comparable to VAT, for which export allowances are already provided under the WTO.