The EU’s proposed Carbon Border Adjustment Mechanism: a zero-sum game

Paolo Falcioni, APPLiA Director General, was invited to speak at the Carbon Forward Conference hosted by Carbon Pulse on “Border breakdown: the EU’s proposed Carbon Border Adjustment Mechanism”, to share the home appliance industry perspective on the measure and its subsequent impact on EU industrial competitiveness.

Paolo Falcioni, APPLiA Director General, was invited to speak at the Carbon Forward Conference hosted by Carbon Pulse on “Border breakdown: the EU’s proposed Carbon Border Adjustment Mechanism”, to share the home appliance industry perspective on the measure and its subsequent impact on EU industrial competitiveness.

In its current state of art, what would be the main burdens stemming from the introduction of CBAM on EU businesses? On this note, Mr Facioni began to explain how a ‘narrow CBAM’ that applies  to raw materials only, would negatively impact the competitiveness of the EU manufacturing industry for finished goods. Home appliance manufacturers for instance, are downstream users of steel, which is employed in the finished products. “Taking the case of the washing machine, if a product  containing steel is manufactured within the EU, it faces additional indirect costs from either CBAM or ETS which would instead not apply to a washing machine containing steel which is manufactured outside the EU,” he highlighted. As a consequence, this would not only make appliances manufactured abroad and imported into the EU more competitive, but also incentivise manufacturers to move their factories outside of Europe. In turn, it would also lead to less manufacturing jobs in Europe and exacerbate the problem of carbon leakage, which is the key issue the Mechanism was designed to tackle, in the first place. Indeed, “the smallest competitive edge for manufacturers who import goods into the EU could see negative consequences for both the manufacturing industry and consumers in Europe and the subsequent impact on carbon leakage levels,Mr Falcioni detailed. 

So, how can we tackle the problem of carbon leakage whilst maintaining industrial competitiveness? “Crucial for the European manufacturing industry is to analyse the impact of the current scope on production costs,” stated Mr Falcioni, emphasising the importance for the measure to achieve climate goals while not jeopardising the European economy. APPLiA believes the key to resolving the issue lies within a global solution. “Europe must commence with a multilateral approach in accordance with free trade rules of the WTO and in unison with world leaders like China and the U.S. towards a decarbonised economy, that would still preserve the Single Market, competition and innovation of all EU industries,” concluded Mr Falcioni.