In this section, we present the results of our analysis of the data from the EU’s consultation questionnaire. We focus on items where we found statistically significant disagreement between business and civil society respondents. However, we include all analysed questions related to each overarching theme, even if there is no statistically significant difference between the responses of business and civil society. Responses to the last overarching theme—determination of embedded emissions—are moved to the Appendix because there is no statistically significant disagreement between the two groups on any of the items within that theme. We also discuss the implications of this in the Appendix.
CBAM motivations and objectives
The first of the salient CBAM design issues identified in the literature was motivations. The survey data indicate several noteworthy divergences in views on the adequacy and effectiveness of existing measures to limit carbon leakage (Fig. 2 (a, b)). There are statistically significant differences between the views of businesses and civil society on whether current measures to address carbon leakage are sufficient (p = .012) and effective (p < .001). Civil society tends to oppose the view that the current measures are sufficient and effective. Businesses also disagree to some extent that the current measures are sufficient yet are more satisfied with their effectiveness than is civil society.
The positions of civil society organizations stated in the qualitative data from the open-ended submissions, in line with the quantitative data from the survey, criticize the continuous use of free allowances due to a failure to decarbonize industry. They argue that ‘CBA[M] must replace free CO2 allowances’ (European Environmental Bureau, see also input from The Federation of German Consumer Organizations) and keeping free allowances while implementing the CBAM would constitute a ‘double subsidy under WTO rules’ (Climate Action Network, see also input from Carbon Market Watch) and would further distort the EU ETS. Open-ended submissions by business, which are less uniform than by civil society, help explain the reasoning behind their responses to the survey. For instance, the Federation of Austrian Industries and the transnational energy company Repsol argue that CBAM should complement rather than substitute free allowances—as they view free allocation of allowances as a well-functioning tool to mitigate carbon leakage. Similarly, the steel manufacturing corporation ArcelorMittal believes that current tools will not be enough in the future and will need to be supplemented by CBAM. Some business submissions break with the general pattern of views and acknowledge a need for the phasing out of free allocations (e.g. Veolia). The Confederation of Danish Industry emphasize, however, that the phase out cannot be rapid, arguing that companies have made investments based on the provision of free allocation until 2030.
The results of the survey (Fig. 2 (c)) also show statistically confirmed differences in views between business and civil society on whether CBAM could be effective in addressing the risk of carbon leakage (p < .001). While both groups largely agree that CBAM could be effective, the views of business are less supportive and more diverse. For instance, Eurometaux, the European non-ferrous metals association, state that they do not wish to be in the list of pilot sectors of CBAM because they ‘do not see a possibility to design a WTO compatible CBAM that covers indirect carbon costs’. The main message from business submissions is summarized in a statement by the Confederation of Danish Industry, which highlights that ‘CBAM must not negatively affect the competitiveness of European companies’.
CBAM effectiveness is likely to be evaluated by its success in preventing carbon leakage. But other objectives also crop up in current public discussions. We find statistically significant differences between the views of businesses and civil society on whether CBAM can encourage less carbon intensive production and ambitious climate policies in partner countries (p < .001), with civil society agreeing more strongly with the statement than business (Fig. 2 (d)).
The qualitative data further explain the position of many businesses that avoiding carbon leakage and ‘climate dumping’ (the Danish Chamber of Commerce) in the EU should be the main objective of CBAM, with a few highlighting a complementary aim of international climate diplomacy (ArcelorMittal). The French energy utility company Engie also warns that a ‘careful consideration should be given that the need for revenues to finance the NextGenerationEU does not become the main driver of the design of the mechanism’. By contrast, civil society takes a broader view on the role of CBAM. The WWF states that CBAM should be ‘driving the fight against climate change and protecting the environment while combining social objectives, not purely as a tool to both contribute to the financing of the EC [European Commission] recovery plan and protect industrial competitiveness against the risk of carbon leakage’. The European Environmental Bureau, a broad NGO network, highlights as additional goal of CBAM to ‘drive non-EU economies towards low-carbon production’ (see also the European Federation of Building and Woodworkers). As a solution to encourage stronger climate policies in developing partner countries, the German NGO Forum on Environment and Development argues that ‘revenues from a CBAM must be passed on to them for adaptation, climate protection and mitigation measures’. In addition, the Federation of German Consumer Organisations sees CBAM as a tool that can enable ‘consumers to consume sustainably’.
For several design options, there are statistically significant differences in views between the two groups of respondents (Fig. 3 (a, b, d)), for instance on whether CBAM should be set up as a border tax applied to imports (p = .004). Most business and civil society respondents, however, largely agree that it is moderately important that the price in the external allowance pool mirrors the ETS price within the EU (Fig. 3 (c)). While most civil society organizations view this option as highly relevant, the views of businesses are more dispersed around a median value of ‘moderately relevant’. The European Commission proposal suggests implementing CBAM via an external pool of allowances that mirrors the EU ETS price, compliant with the option with the highest convergence in views between businesses and civil society on this issue.
In their free-text submissions, business organizations provide various rationales for supporting different policy instruments depending on their concrete design and application. Veolia, for example, leans towards a tax applied on imports as well as a carbon tax at consumption level, justifying the latter as an opportunity to correct weaknesses of the EU ETS, more specifically the fact that ‘free allocation mutes the carbon price signal for materials down to customer level’. With regard to policy options involving the EU ETS, they do not have an opinion due to lack of clarity on the impact of these policy instruments ‘on the existing EU ETS and CO2 allowances price evolution’. By contrast, Engie is categorically against ‘the inclusion of imports in the EU ETS as to not impact the integrity and the good functioning of the EU ETS. Extending the EU ETS also to imports will trigger additional challenges and risks undermining firm carbon price signals; or shift the higher decarbonization efforts to the sectors currently already covered by the EU ETS if newly increased sectors are less price-sensitive’. Yet, many businesses are supportive of a policy instrument that in some way is linked to the EU ETS (e.g. European Energy Traders, Federation of Austrian Industries, PwC). For example, PwC argues that ‘a requirement that importers purchase ETS allowances at the prevailing price would appear to be the policy instrument that is most effective in achieving the objectives of the CBAM’.
Similar to business organizations, civil society is supportive of a policy instrument that is linked to the EU ETS. According to WWF, ‘it could be conceived as a tax on imports as an equivalent to the costs carried by EU industries as a result of having to buy carbon permits under EU ETS’ (also see input from the European Environmental Bureau). However, Carbon Market Watch is critical of the option that would involve creating an external allowance pool that mirrors the EU ETS price. They argue that ‘despite being the option that would fully shield the EU ETS from potentially negative impacts on price dynamics…the obligation to purchase allowances from a separate pool would not expose importers to exactly the same conditions to which EU industry is subject, which in turn would undermine its effectiveness in ensuring a level playing field. Moreover, setting up a separate pool that mirrors exactly the price fluctuation in the EU ETS seems unrealistic or at least complex to achieve’.
Geographic scope: exemptions and adjustment for foreign climate policies
Concerning the third CBAM design issue identified by the literature, geographic scope, Fig. 4 (a, b) shows that civil society is more in favour of exemptions for least developed countries (LDCs) than business (p < .001). At the same time, there is agreement between business and civil society that CBAM fees should be lowered for countries with ‘comparable climate policies’ (Fig. 4 (c)).
The civil society qualitative data largely support the survey results. Carbon Market Watch argues for exempting LDCs and small island developing states. Climate Action Network Europe mentions policy provisions that counter negative effects of CBAM in partner countries, ‘such as on domestic resources and exports’, including exemptions ‘according to country and sectoral differentiation’.
The qualitative data from the business sector is mainly about CBAM adjustment or rebates for countries with domestic carbon pricing or policies, or products that are ‘cleaner’ than the EU benchmark, e.g. PricewaterhouseCoopers Netherlands (PwC), Veolia, Eurometaux and ArcelorMittal. Veolia, for example, stresses that CBAM should apply for all but ‘producers from countries that have instituted sufficiently ambitious domestic climate policies provided it is done in a fair and transparent manner’. With regard to exemptions for LDCs, ArcelorMittal argues that ‘least developed countries are unlikely to be affected by the measure’ (see also input from Veolia). In a slightly different angle on the issue, Engie states ‘whereas a differentiated treatment of imports from developing countries might be envisaged under the CBAM, it should be designed in such a way that it continues promoting sustainable development and avoid adverse effect such as a standstill of local technological improvements or lock-in of more emitting assets’.
Sectors and products covered
On the fourth design issue, sector and product scope (Fig. 4 (e, f)), businesses have a stronger preference than civil society for applying CBAM to products from activities with the highest risk of carbon leakage (p = .008).
In the qualitative submissions from both business and civil society, among those that are supportive of the instrument, there is a general agreement that CBAM should begin by covering sectors that are carbon intensive, exposed to trade and vulnerable to the risk of carbon leakage. There are nuances in the civil society submissions on this issue. For example, Carbon Market Watch argues that ‘the power sector – a sector generally not considered at risk of carbon leakage – should be included in specific cases where high carbon imports of electricity from neighbouring countries occur’. On the business side, some respondents argue for the extension of CBAM to all parts of the value chain. Eurometaux, for example, argue that such an approach should be implement from the onset of the CBAM (see also input from the Federation of Austrian Industries), while Eurofer states that ‘once the CBA is introduced on the most carbon and trade intensive activities, it could be extended progressively to cover the entire value chains’ (see also input from PwC).
Coverage of trade flows: export rebates
Regarding the fifth design issue, coverage of trade flows, civil society shows less support than business for export rebates under CBAM (p < .001) (Fig. 4 (g)). The open-ended responses further articulate the position of business respondents that export rebates are essential to include in CBAM design. ArcelorMittal, for example, argues that ‘a rebate for exports is necessary and consistent with the environmental rationale of the CBA[M]’. They go on to state that, if rebates are not granted, CBAM ‘could be detrimental for EU exports to third countries’. Repsol states that they ‘strongly agree about exploring the rebate options, always bearing in mind WTO requirements’. By contrast, Climate Action Network argues that ‘[e]xport rebates should be excluded from the mechanism as this could encourage differentiated production for domestic and export markets’ and thereby undermine higher climate ambition. In addition, Carbon Market Watch states that ‘rebates for exports would lower the carbon price effectively faced by European industries and risk to create perverse incentives. Moreover, export rebates would not be coherent with higher EU climate ambition and the drive to encourage higher climate ambition globally. Carbon should be priced regardless of the market on which a product is sold’.
Finally, on the sixth salient CBAM design issue, the emissions scope, civil society respondents are more in favour of including emissions from the international transport of goods in CBAM than are business respondents (Fig. 5 (a), p = .029). However, both business and civil society express strong preferences for including emissions from the complete value chain as well as emissions associated with electricity use (Fig. 5 (b, c)). Supporting the survey results, the majority of analysed open-ended civil society submissions argue that the cost of both direct and indirect emission should be included and correctly accounted for (Carbon Market Watch, CEE Bankwatch Network). In contrast to the survey results, the qualitative submissions from business respondents show nuances in their views on indirect emissions. Some businesses argue that accounting for indirect emissions would be administratively complex. Others, such as Engie states that ‘both direct and indirect (linked to power generation) emission costs should be covered to ensure a level playing field amongst EU and non-EU producers’ (see also input from Eurofer). Similarly, Veolia argues for accounting for emissions of the complete value chain, stating that ‘enlarging the scope of the mechanism would encourage the reincorporation of recycled materials in products and help to bridge the price gap between virgin and recycled materials. Doing so would also boost recycling’.