The Brief – Clumsy carbon diplomacy

It is hard to find many critics in Brussels of the EU’s new carbon levy that came into force in October. The Carbon Border Adjustment Mechanism (CBAM) is one of the few major pieces of law passed by Ursula von der Leyen’s European Commission that secured cross-party support in the European Parliament. 

Outside the bubble, however, it is a very different story. The levy might be aimed primarily at China and Russia but the likes of India and African states, with whom the EU wants to have closer political relations, will also be hit. 

Indeed, India and South Africa have led the international opposition to CBAM, lodging claims at the World Trade Organisation (WTO) that CBAM breaches the WTO’s non-discrimination principle. 

EU officials insist that the phase-out of free allowances to EU firms means that it is WTO compliant. But antagonising natural allies with CBAM, rather than encouraging them to adopt similar schemes, was clumsy politics. 

If the EU had wanted to use CBAM as a means of being a global rule-setter and maker it should have consulted with third countries before setting the legislation in stone. 

Daniel Gros, director of the Centre for European Policy Studies, argues that the economic costs of the levy are overstated since CBAM covers only around 3% of all goods imported into the EU. 

The Commission has promised African states that the levy will be policed with a light touch. Yet no concrete mitigation or adaptation measures have been agreed, and a proposal to exempt them from CBAM was considered but rejected. 

The African group in the WTO has argued that the administrative and compliance burden “will be difficult and prohibitive for most if not all developing countries”.

German Chancellor Olaf Scholz has urged African states to impose their own carbon border tax by copying and pasting the EU regime to create a ‘climate club’ with the EU. But that would only work if it was coordinated across the African continent and the African Union does not have the political or technical support to do it. 

Another more viable option is for the EU to use the levies from developing countries to help finance their clean energy transition via the EU’s Global Gateway infrastructure programme. However, that is precisely the paternalist approach that ‘middle powers’ like India and developing countries dislike about the EU. 

There are signs that some jurisdictions will simply copy and paste the new EU regime into their own legal frameworks.

Earlier this week, the UK confirmed that it would introduce its own carbon border tax in 2026 modelled on CBAM, amid industry fears that otherwise, the UK could face hefty tax bills for exporting to the EU. 

Critics point out that CBAM was designed by the Commission’s Tax and Customs Union experts rather than DG Trade, which could explain why the politics of CBAM have been mishandled.

Either way, in terms of climate diplomacy, the EU has missed a trick. 

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The Roundup

EU membership of agricultural powerhouse Ukraine would result in the ‘death’ of family farming, the German farmers’ union has warned amid growing concerns over the future direction of the EU’s farming subsidies programme.

A cross-party coalition of Members of the European Parliament demanded the European Commission take action following the revelations that sensitive data from European leaders was being sold to the highest bidder.

The European Commission is considering using its “trade instruments” as the EU’s wind industry continues to struggle with fierce competition from China, high raw material prices, rising interest rates, and slow permit-granting processes.

EU legislators agreed on new rules on Thursday to tackle potential cases of manipulation or insider trading on the bloc’s wholesale electricity market, granting new powers for regulators to investigate potential cases and crack down on offenders.

Scarce e-fuels and sustainable biofuels should be reserved for hard-to-decarbonise transport modes such as shipping, rather than going to trucks and buses where electrification is a viable option, shipowners argue.

The Spanish presidency of the EU Council wants an opt-out option for the primary use of health data in emergency situations and two mandatory ‘harmonised components’ for health record systems (EHRs) in the EU’s health data regulation, according to a position paper obtained by Euractiv.

While the number of cancer survivors in the EU is increasing due to medical advances, patient organisations have highlighted the need to better incorporate financial and psychosocial aspects when addressing quality of life.

The Hungarian government launched on Friday a “national consultation” billed as “protecting” the country against alleged European Union policies, including war-torn Ukraine’s potential membership of the bloc.

For more policy insights, check out this week’s Economy Brief, the Tech Brief, and the Agrifood Brief.