Washing machines in an appliance store (illustrative image), PHOTO: Newscast / Universal images group / Profimedia Images
The European Union will expand its carbon tax – a tax levied on imports into the bloc of high-emissions goods – to cover washing machines and car parts, according to European Commission proposals published on Wednesday.
The plans would also close “loopholes” which the Commission fears could allow non-EU firms to avoid paying the tax. This is currently in a pilot phase and will start generating costs from January.
The Carbon Border Adjustment Mechanism (CBAM) – the world's first carbon border tax – will impose costs on the carbon dioxide emissions of imported goods, including steel, aluminium, cement and fertiliser.
The European Commission led by Ursula von der Leyen says it designed the CBAM to protect European industries from cheaper imports from countries with less stringent climate rules. But it has angered trading partners such as China, India and South Africa, who say the measure unfairly penalizes their economies.
Despite these objections, the Brussels executive wants to strengthen its approach to the carbon border tax.
EU plans welcomed by European industry
The commission proposed expanding the tax to cover products that use a high proportion of steel and aluminium, including construction products and machinery, confirming draft EU legislative proposals previously reported by Reuters.
The tax imposed by CBAM on imports will be linked to the carbon price that EU companies already pay under the bloc's carbon market.
“We are not asking for anything more, but we are not asking for anything less, for those goods entering the European Union,” said Wopke Hoekstra, the European Commissioner for Climate.
Leon de Graaf, acting chairman of the Business for CBAM Coalition, a coalition of companies and industry groups, welcomed the EU plans, which he said targeted “the products that face the greatest risk of carbon leakage” – the risk of manufacturers moving abroad to avoid Europe's strict climate policies.
The European Commission wants firm mechanisms for collecting the carbon tax
The EU also wants to crack down on foreign companies if there is evidence they are not reporting their emissions correctly to avoid the tax.
In such a scenario, the EU could impose “default” emission values for a particular country's products, leading to a higher CBAM bill.
The move aims to address EU concerns that companies from outside the Union – particularly those from China – could resort to strategic “adjustments”, sending low-carbon products to Europe while continuing to produce high-carbon goods for other markets. Thus, they could avoid the EU tax without making their overall production greener.
The plan will have to be approved by EU member states
EU member states and the European Parliament will negotiate the proposals before they become law. Although CBAM will charge importers costs for the emissions associated with their imports from 2026, companies will have until September 2027 to buy and surrender CBAM allowances to the EU in order to comply.
After the EU announced its carbon border tax in 2021, China, India and Brazil — while critical of the EU bloc's policy — began developing or expanding their own carbon pricing systems.
Those countries “changed their behavior. This is the success of CBAM,” Totis Kotsonis, a partner at law firm Pinsent Masons, told Reuters.
The European Commission has also proposed using 25% of the revenue generated by this mechanism to compensate European producers for the higher costs associated with the carbon border tax. This support would only be granted to industries that invest in production processes with lower carbon emissions.
