The European Commission has recently announced that it will provide carbon compensation to European industries that export goods. This will help them offset the cost of CO2 emissions paid within Europe. This measure aims to prevent companies from moving operations outside the EU to avoid the bloc’s ambitious climate policies.
The announcement came as the Commission proposed a new 2040 climate target for the EU, which will necessitate significant investments from heavy industries to decarbonize their production.
How the Compensation Scheme Will Work
By the end of this year, the Commission plans to introduce a scheme that will use revenues generated by the EU’s Carbon Border Adjustment Mechanism (CBAM) to support companies exporting goods to foreign markets. In these markets, unlike in Europe, their competitors do not incur CO2 costs.
EU climate commissioner Wopke Hoekstra stated that this initiative is specifically designed to support companies at risk of competitive disadvantage due to exporting. He anticipates the system will offer €70 million ($82 million) in compensation next year. The EU projects its carbon border tariff to generate €2.1 billion in revenue by 2030.
Addressing Industry Concerns
Industries such as aluminum and steel production have advocated for such compensation. These sectors are set to gradually lose the free carbon permits they currently receive from the EU as the bloc implements its carbon border levy next year. The loss of these free permits will compel European firms to purchase more permits from the EU carbon market, an additional expense that industries have warned could undermine their competitiveness in international markets.
The Commission confirmed that the compensation companies receive will be directly linked to the loss of their free CO2 permits. Hoekstra emphasized the importance of ensuring the system cannot be manipulated or exploited by non-EU entities.
The Commission is still developing the specifics of the scheme, which it will propose later this year along with measures to prevent foreign companies from circumventing the EU carbon border levy.
