In early 2022, IEEP created the Green Trade Network, a group of experts from over 20 European research organisations, ranging from think tanks to NGOs and academia, conducting evidence-based research and outreach activities on the trade and environment nexus. On this page you will find information on the network's activities as well as the editorial from its latest newsletter. Don't hesitate to subscribe, and follow @GreenTradeNet on twitter for more frequent, bite-sized updates.
GTN member organisations are based in 9 EU Member States, but also in the United States of America, United Kingdom and Switzerland. The aim of the GTN is to collectively promote a European agenda with a better alignment of trade policies and trade-impacting measures with key environmental and climate objectives.
November 2022 newsletter editorial
CBAM and Export Rebates: a call for a concerted transition
You are reading the 5th edition of the Green Trade Network's newsletter coordinated by IEEP, gathering in one place information and key happenings in the world of green trade. If this is the first time you're receiving it, check out the previous editions here.
As CBAM is being negotiated in trilogue, the treatment of exports remains to be decided. While the Commission and the Council favour border adjustments to imports only, the Parliament adopted amendment no. 262 to incorporate export rebates into the mechanism. In a previous paper, the GTN has already highlighted the inherent risks of such measures. Despite pressing calls from the industry, the incorporation of export rebates would pose serious challenges to both trade and the environment.
Economic incentives to environmental action. The economics behind the ETS are to give low carbon producers a competitive edge, while making polluters pay. To date, free allocations under the EU ETS have been efficient in preventing carbon leaks but have substantially exempted ETS sectors from much-needed carbon reduction efforts. Similarly, an export rebate would give ETS sectors fewer incentives to reduce their emissions or make necessary investments. The same goes for the global stage. The CBAM has the potential to encourage foreign producers “to adopt low carbon technologies”. In leading the transition, EU producers could gain competitiveness at home and on any low-carbon market. However, export rebates would let them stick to high carbon technologies and may set the conditions for a global race to the bottom.
Legal barriers to trade measures. Export rebates also raise a number of legal issues. Part of the legal risk lies in the potential incompatibility of export rebate measures with the WTO Agreement on Subsidies and Countervailing Measures (ASCM). Unless regarded as an indirect tax (despite the EU constant position), export rebates should pass the whole ASCM test and would likely be considered as prohibited export subsidies. More importantly, the inclusion of export rebates might inform the general understanding of the CBAM, jeopardising the legal viability of the whole mechanism. It would make it more difficult to justify the CBAM under GATT Article III.4 alone, but also to make the case for an exception under article XX. Export rebates might well amount to “arbitrary or unjustifiable discrimination”, and the existence of export rebates would contradict the necessity of carbon-pricing measures.
Supporting the transition. At the end of the day, decarbonisation is certainly the shortest route between climate action and competitiveness. Greening the industry is not only a way to ease carbon charges, it is the primary objective of the whole regulation. From the EU side, emphasis should be placed on supporting the transition. EU industries will require substantive investments in the years to come, and the achievement of EU climate ambitions is conditional upon these investments. The Innovation Fund will be key in supporting the development and deployment of low carbon technologies on the continent. By taking the lead in this transition, the EU should also promote innovation at the international level. Cooperation in the development of innovative solutions is certainly the best way to reconcile domestic and foreign industries with climate action.
The French Presidency of the Council announced that reaching an agreement on CBAM will be one of its top priorities. As discussions have intensified both in the European Parliament and between Member States, the Green Trade Network issues this summary to EU decision-makers, highlighting four mutually reinforcing essential principles in order to deliver on a robust, effective and ambitious CBAM.