New CO2-import duties of the EU might drive companies away from the EU

Within the European Union (EU), production processes are currently taxed with a CO2-tax via the European Trading System. However, imported products from outside of the Union are not taxed for carbon emission during production. A CO2-import tax (Carbon Border Adjustment Mechanism, CBAM) will be introduced for non-EU producers to guarantee a level playing field. Martijn Schippers, Assistant Professor of Customs Law at Erasmus School of Law, explains the regulations and their impact to BNR.

The CBAM is part of the Fit for 55-plan of the European Commission, introduced to lower the carbon emission rates by 55% in 40 years, starting in 1990. It is proposed to tax semi-finished products, however, finished products will not be taxed. Which means that aluminium and steel will be taxed, but a car made from aluminium and steel will be exempt from the import tax. This exemption will probably result in companies moving their production site outside of the EU or doing productions meant for the EU outside of the EU. As a result, importing finalized products will be cheaper than importing the materials for the production of these products inside the EU.

As these import duties keep increasing, more and more producers will start thinking about moving their production outside of the EU. “At the beginning of the year, the rate was €30 per ton CO2; in half a year, that rose to €50. According to Schippers, if that trend continues, this tax will play an important role in the decision-making about the possibility of moving the production outside the EU”.

The import duty will be introduced in 2023 and will not be collected until 2026. Between 2023 and 2026, the European Commission will research and evaluate whether the correct goods are a part of this new duty. Therefore, the scope of the import duty could still be broadened, and the chance that a company moves as a result of the duty could decrease.

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Click here for the entire article by BNR (Dutch).

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