Domestic and Paris Agreement-aligned international carbon credits used to pay for emissions in non-EU countries could be counted towards a carbon price already paid on an import's emissions under the bloc's carbon border adjustment mechanism (CBAM), under proposals published by the European Commission today.
Under the CBAM regulation, declarants can claim a reduction in the CBAM certificates they must surrender for emissions embedded in imported goods if a carbon price has already been paid in the country of origin.
In a draft implementing act published for consultation today, the commission proposed including all forms of compliance options allowed in the relevant country in the calculation, including carbon credits.
Claiming this reduction should be allowed "irrespective of whether the mitigation activities linked to the carbon credit takes place domestically or outside the domestic jurisdiction", according to the draft implementing regulation.
But while domestic credits could be counted with no additional criteria, only international credits issued under Article 6 of the Paris Agreement should be counted, the commission proposed. "This criterion should promote the development of Article 6 credits and provide the quality assurance necessary to ensure the environmental integrity of CBAM," it said.
Counting international credits as a carbon price already paid on CBAM goods should also be limited to 10pc of the reported emissions to incentivise domestic emissions cuts, the commission said.
Any rebates or compensation received by installations covered by carbon pricing should also be factored in, the commission proposed, including free allowances or other exemptions.
The carbon price could have been paid on direct, indirect or precursor emissions, under the draft.
The commission may publish default carbon prices for relevant countries, it said.
And it proposed publishing a yearly reference price for CBAM certificates to be used in the calculation of the deduction. The price paid in the non-EU country would be based on either a yearly average primary or secondary market price or individual records of payment, converted to euros based on yearly average exchange rates.
The regulation would apply from 1 January this year. The consultation closes on 10 June.
