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The EU’s heavy industry will be allowed to claim compensation for exports funded by the bloc’s carbon border tax in new plans covering polluters, as Brussels comes under pressure to weaken climate rules.
The European Commission will propose on Wednesday that sectors such as steel, cement and aluminium should be exempt from paying for the carbon emissions of their exports to level the playing field with foreign competitors, according to two EU officials involved in the talks.
The proposal comes amid heated debate over the ability of the EU to meet its climate targets against the backdrop of a global trade war and rapid shift of priorities towards defence and economic competitiveness.
The EU’s climate commissioner Wopke Hoekstra told the Financial Times that the EU had to “double down” on making the conditions for meeting the targets better for business.
Measures such as the bloc’s carbon border tax were “fantastic” for decarbonisation but could not be “at the expense of our own companies and that they face unfair competition on the global market”, he said.
The plans will be presented alongside a new target to cut greenhouse gas emissions by 90 per cent by 2040, compared with 1990 levels — a target that several member states including France have said they will not agree to unless there are concessions for industry and better acknowledgment of nuclear power.
In a further compromise, Brussels said that 3 per cent of the 2040 target may be met by international carbon credits, essentially a way for member states to count their financing of international climate projects towards their own emissions savings.
Carbon credits are financial instruments meant to represent a tonne of carbon dioxide removed from the atmosphere through projects such as growing forests.
The EU’s scientific advisory board has advised against allowing international carbon credits to count towards the bloc’s climate targets, arguing that it could undermine domestic efforts to cut emissions.
But Hoekstra said the measure could represent a “bridge in terms of climate action” with developing countries and should be seen “next to classic development aid and other business ties”.
Europe’s heavy industry has been pressing for the export solution since 2021, when the EU announced its carbon border adjustment mechanism (CBAM) — a tax on the emissions produced by imports into the bloc to protect EU industry from being undercut by cheaper, dirtier imports.
Under the new proposal companies will be refunded in the form of free carbon permits for payments they have made to cover the carbon emissions of their exports under the bloc’s emissions trading system, two senior officials confirmed. The permits will be funded by revenues generated by CBAM, one said.
The carbon border tax will be phased in at the same time that industries lose their allocation of free allowances under the bloc’s emissions trading system. The emission allowances are presently trading at just under €70 a tonne of carbon.
The EU cement industry has estimated that if the carbon price rises to about €125 by 2030, the price could account for more than 50 per cent of production costs.
Samuel Flückiger, head of climate and circular economy policy at German steelmaker Thyssenkrupp, said export markets were still critical for the industry, while domestic markets were challenged.
“Putting these markets at risk in an already weak market . . . is not a very smart thing to do” he said.
The details will be outlined before the end of this year, a senior EU official said.
The overall 2040 target is seen as a critical waymarker by businesses and industry to guide investment and as a confirmation that the bloc is sticking with its ambitious climate goals despite increasing political pressure from right-wing groups to backtrack on green legislation.
The bloc is broadly within its target to reduce its greenhouse gas emissions by its interim goal of 55 per cent by 2030. The 2040 target will also guide the EU’s decision on a “national determined contribution”, or climate plan for up to 2035, that must be submitted to the UN ahead of the COP30 climate summit in Belém in November.
More than 150 companies including Iberdrola, Unilever, Inditex and Vattenfall have signed a letter arguing that the EU must stick to its climate ambitions. “A robust climate target and decarbonisation of our economies will improve the EU’s resilience to shocks, energy security and competitiveness,” they said.
