Europe’s Carbon Levy Should Cover Hydrogen, Key Sponsor Says

(Bloomberg) -- The European Union's proposal to charge importers for bringing emissions into the region should be expanded to cover hydrogen, organic chemicals and polymers, according to proposed amendments seen by Bloomberg News.

The 27-nation bloc plans to introduce a new levy, called the Carbon Border Adjustment Mechanism, to ensure a level playing field among producers during an unprecedented shift to climate neutrality. The tariff initially would target steel, aluminum, cement, fertilizers and electricity to discourage manufacturers from moving plants to countries with laxer pollution policies.

Yet Mohammed Chahim, the Dutch lawmaker steering the proposal through the European Parliament, said its scope is too narrow and its timeline too slow.

“Organic chemicals, hydrogen and polymers should be included given their carbon and trade intensity,” he said in his report, which is yet to be released.

In his role as the rapporteur, Chahim wants to accelerate the levy's implementation, create a central authority to enact it and ensure the EU can boost financing to help the least-developed countries shift away from fossil fuels.

“The rapporteur welcomes the overall design of the mechanism by the Commission and considers it a solid starting point for the legislative process,” he said. “The rapporteur nevertheless aims to further strengthen its climate ambition, its long-term effectiveness and its governance through a number of targeted amendments.”

The border levy proposed in July is meant to combat what's called carbon leakage. It intends to make importers pay for emissions embedded in certain goods, thus protecting local manufacturers, and prod other regions to follow the EU's lead. The plan triggered hostile reactions from some trading partners, including Russia and China.

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After a data-collection stage from 2023 to 2025, importers would be charged in line with prices in the bloc's Emissions Trading System, its cap-and-trade market for permits, according to the commission's draft. The fee could be at least partially waived if one was paid where the goods were produced.

Chahim wants that period shortened to 2024. He also calls for a quicker end to the free emission permits given to companies most prone to carbon leakage. The commission wants to phase out the allocations by 2036, but Chahim proposes the timeline be moved to before 2029.

Ending them sooner would clear a path for fully implementing the border levy that year, but that scenario is bound to be opposed by energy-intensive companies, such as steel manufacturers, that want the permits and the levy to co-exist. In addition, his proposal couldn't be enacted until a separate law on emissions permits was changed.

In the next step, the parliament's environment committee will consider Chahim's report and any amendments submitted by its members. A vote is scheduled for Feb. 28.