The Jolt: Europe’s carbon border tax goes live

Some of the main climate and energy stories making the news around the world:

• The European Parliament will interview a Dutch candidate to fill the now-vacant climate commissioner position. Wopke Hoekstra will have a hearing with MEPs later today on October 2nd, 2023, with his past links to fossil fuels and record in government under scrutiny. On October 3rd, MEPs will interview Maroš Šefčović, a Slovak official who is in line to be promoted and have oversight over the rest of the EU Green Deal.
• The United States government has unveiled plans to issue just three leases for offshore oil and gas exploration in the coming five-year period. In what is a massive scaledown from the Trump administration’s announced 47 leases, the new plan has nevertheless attracted criticism from both Republican lawmakers and industry, as well as environmental groups, which wanted leases cut to zero. The three sales mean the government will abide by the Inflation Reduction Act, which sets a minimum number of exploration leases needed to issue offshore wind farm permits.
• Japan’s government has agreed to allow corporate usage of smart meter data. Under a new scheme, companies can pay a fee to access information from the country’s 80 million devices, which log power consumption and user behaviour patterns. It is hoped that greater transparency will allow those companies to roll out more ambitious energy savings measures and help Japan meet its long-term emissions reduction goals.
• The EU’s carbon border tax, or CBAM, went live on October 1st, as the transition period kicked off.

• CBAM is meant to prevent carbon leakage—a phenomenon where industries relocate to avoid energy transition legislation and the associated costs—and to spark more ambitious green policies by the EU’s trading partners.
• Imported steel, iron, aluminium, fertiliser, hydrogen, electricity, cement and some precursors will be charged extra tariffs if they are not manufactured cleanly or do not respect sustainability criteria.
• Significant trading partners like China and India are not keen on the policy, which they have called discriminatory and unfair. Legal action has been threatened, but Brussels insists that CBAM is watertight.
• Elisabetta Cornago at the Centre for European Reform says that the “pragmatic approach” would be for trading partners to get their own houses in order, set up their own carbon pricing schemes and use the money they generate to decarbonise their economies, instead of paying the EU.
• Dan Maleski of Redshaw Advisors adds that the United States will play a role, and the Inflation Reduction Act might muddy the waters of CBAM if the rules are not spelt out correctly. He also explains that not just non-EU businesses will have to get to grips with the new policy, as EU firms that are reliant on global supply chains also have to get up to speed.
  

“Some folks know what the acronym stands for but not much besides that”

• CBAM’s transition period runs until the end of 2025. Businesses affected by the instrument will only have to monitor, record and verify the embedded emissions in their products. Charges are expected to start in 2026.
• Other CBAM coverage by FORESIGHT includes this in-depth article on the rules yet to be finalised, a Watt Matters episode with senior MEP Mohammed Chahim and an edition of the Policy Dispatch covering China’s response.