Fragmented regimes and carbon accounting protocols are raising costs and delaying investment decisions for industries that fall under carbon border adjustment mechanisms (CBAM), delegates heard at the Carbon Forward conference in London last week.
Different approaches for measuring the emissions intensity of production processes under CBAM, greenhouse gas-accounting and other schemes create duplicative calculation and verification burdens, Abu Dhabi-based nitrogen fertilizer producer Fertiglobe's vice-president for sustainability, Hesham Yehia, said at a panel discussion. The prospect of dozens of national border mechanisms could make compliance unmanageable for producers around the world, he said. Methodologies "do not tie up", Yehia said, calling for interoperability among regimes and protocols.
Having "one carbon price is actually less important than ideally having one kind of standard", consultancy Dubrink chief CBAM officer Marcel Duits said. Systems will have to harmonise in the long run, otherwise it will be impossible for companies to comply with all the different regimes, Duits said.
Projects cannot be financed with confidence when certification rules and CBAM schemes assess the same low-carbon molecule differently, Yehia said. "If there are two regulations treating [emissions] differently in the same market, nobody will invest." You need regulatory clarity before you make a final investment decision on a project, he said.
Experts warned that high default values and rising certificate costs may redirect trade away from the EU, erode margins and disadvantage unprepared companies. The aim of the EU's CBAM is to prevent carbon leakage and create a level-playing field between EU and non-EU producers in terms of paying for emissions, while also encouraging non-EU producers to take steps to decarbonise and prevent climate change. But it may have the opposite impact, experts warned. The CBAM is changing sourcing, pricing and market access decisions, while adding cash-flow and carbon-price risk.
It is crucial for CBAM revenue to support decarbonisation both inside and outside the EU, Yehia said. Funds should be allocated in proportion to the balance of EU production and imports, particularly in import-dependent sectors such as fertilisers, he said. Revenue from the CBAM could be "allocated to not just EU but also non-EU producers", with exporters incentivised towards further emissions cuts through EU support, Yehia said.
If applied, this could turn the anti-CBAM sentiment outside the EU into a more co-operative and supportive approach, with non-EU firms delivering goods into the bloc likely to be keener to collaborate rather than criticise the policy.
A form of compensation for developing countries was proposed during the CBAM legislative process, with the European Parliament advocating using additional EU financial support linked to the CBAM to help developing countries decarbonise their industries and adapt to the measure. But this did not make it into the final CBAM regulation. The EU CBAM will prompt governments in the rest of the world to impose their own emissions pricing regimes, to keep funds within their respective countries, panelists said. But such countries often consider the impact of carbon pricing on local industries — particularly in those where only a small fraction of CBAM goods are delivered to the EU — and are often either opting out or setting up less effective regimes that charge much less than the current EU emissions trading system. This is a double burden for industries outside the EU, particularly in developing countries, as they are paying the emissions burden but not receiving any support in return to decarbonise, Yehia said.
