Lobbying Activity
Response to Carbon Border Adjustment Mechanism
17 Nov 2021
NLMK: About Us
NLMK is an international steelmaker with a total production of 17 million tonnes. It has a strong footprint in Europe, with six production facilities across Belgium, Denmark, France and Italy directly employing 2,000 people and investments over €1 billion to date.
NLMK business model is unique: it is a steel “reroller”. This business model makes NLMK both an importer and a producer in Europe, setting it apart from integrated steel manufactures and allowing it to provide valuable insights for designing effective and fit-for-purpose CBAM.
A fair carbon price for imports
A final CBAM should be designed in a way that ensures a fair carbon price on imports into the EU and evaluates companies and products according to their actual carbon footprint and climate impact. More specifically this means:
• Individual adjustment verification rather than default values should be used to most accurately gauge carbon intensity and incentivise low carbon production in third countries.
• A CBAM shall recognition individual production chains of exporters using the EU ETS installation-based approach.
• Equal treatment for EU producers and importers should be ensured to prevent de facto discrimination, including by deducting direct and indirect emissions support measures from the final CBAM.
1. A CBAM must enshrine individual adjustment verification
An individual adjustment mechanism for importers is the best approach for upholding the EU’s climate values. It significantly strengthens the EU’s climate efforts domestically, mitigates the risk of importing more carbon intensive products and incentivises decarbonisation efforts in third countries.
Under this model, importers would be able to demonstrate that the individual carbon content of their product lies below the default value. Otherwise, the EU runs the risk of sourcing from the cheapest producer, which is often the most carbon intensive.
It is also important to treat each production chain separately, just like within the EU ETS (installation based approach). An importer treated based on the overall carbon intensity of production assets loses an incentive to invest into new low carbon value chains.
• Core demand: Individual adjustment rather than default values must be maintained in the final CBAM.
2. A CBAM must be based on the effective carbon price
A CBAM should mirror the effective burden on the EU industry under the ETS. A mechanism targeting full emissions of importers while maintaining free ETS allowances for EU producers would amount to protectionism and de facto discrimination.
To ensure that CBAM provides an equal treatment of EU producers and importers it must reflect the effective carbon price paid by domestic manufactures with free allowances and state aid compensation deducted from the final CBAM for a specific sector.
• Core demand: A final CBAM must reflect the effective carbon price including the existing compensation provided to EU producers to ensure fairness and non-discrimination.
3. A CBAM must avoid trade disruptions and provide regulatory certainty
The sectors covered by the CBAM proposals have complex and long value chains that use different feedstock materials. A poorly designed CBAM risks disrupting and distorting the EU market to the benefit of some market segments over others. Moreover, CBAM might have broad effects on the downstream sectors by triggering a shift to importing fully finished goods, produced in a more carbon-intensive way. This impact on downstream consumers should be carefully analysed.
Finally, the CBAM proposal must provide enough regulatory certainty to allow businesses to make long-term investment decisions. It is key to create a regulatory framework, which would support the industry transition and would enable investments into new low carbon value chains.
• Core demand: A CBAM shall avoid negative impact on markets, value chains and trade and shall create a regulatory environment that supports the transition.
Read full responseMeeting with Gints Freimanis (Cabinet of Executive Vice-President Valdis Dombrovskis) and Hill Knowlton International Belgium and
17 Jun 2021 · Carbon Border Adjustment Mechanism (CBAM)
Meeting with Antoine Colombani (Cabinet of Executive Vice-President Frans Timmermans) and Hill Knowlton International Belgium and METINVEST
16 Apr 2021 · Carbon Border Adjustment Mechanism
Meeting with Gints Freimanis (Cabinet of Executive Vice-President Valdis Dombrovskis), Michael Hager (Cabinet of Executive Vice-President Valdis Dombrovskis) and
9 Apr 2021 · Carbon Border Adjustment Mechanism
Meeting with Frans Timmermans (Executive Vice-President) and The European Steel Association and
26 Jan 2021 · EU ETS, Carbon Border Adjustment Mechanism, Circular economy
Response to Carbon Border Adjustment Mechanism
31 Mar 2020
NLMK Group actively supports the existing and potential measures to combat climate change, including by way of decarbonizing the steel sector in the EU and other jurisdictions.
With regards to the main objective, we welcome the Commission's endeavour to seek the ways to design the mechanism which can "[fight] climate change by avoiding carbon leakage". As the fight against climate change needs to be global, the measure can be an opportunity for the EU to project its climate leadership globally. It is equally important to consider the EU's existing internal climate targets (by 2030, and climate neutrality potentially by 2050). When designing the measure, it is therefore important to consider the impacts of the measure on both these EU internal targets (greenhouse gas reduction, renewable energy production), and global CO2 reduction ambitions, and "to prevent environmental harm" as stated in the inception report. The European response to the growing gap between countries’ climate ambitions shall be comprehensive and may among other things include progressive market standards for carbon intensity of traded goods and/or promotion of multilateral arrangements which would ensure the enforcement of similar carbon regulation in the majority of jurisdictions.
Further developing and strengthening of the European carbon policy can also be achieved through the introduction of a Carbon Border Adjustment Mechanism (CBAM). If properly designed it may become an additional option in providing an effective carbon leakage protection.
Regardless of the policy instruments suggested by the Commission in the CBAM impact assessment report (i.e. a carbon tax on selected products – both on imported and domestic products; a new carbon customs duty or tax on imports; the extension of the EU ETS to imports), what is paramount is that the measure should enable a level playing field in which the 'polluter pays' – a cornerstone of EU environmental policy enshrined in Art 191 TFEU.
For the steel sector in particular, the final measure then needs to do two things:
1. The scope of the measure needs to cover the full steel value chain starting from the raw materials the production of which is often carbon intensive
2. The measure needs to enable an individual adjustment based on the actual carbon intensity of the producer
With regards to the first point, the scope of the measure needs to include the full steel value chain, from upstream raw materials to finished steel-containing products. Both direct and indirect CO2 emissions (including Scope 3) also need to be included to prevent further carbon leakage, even when the indirect segment is not yet subject to EU ETS.
On the second point, adherent to the 'polluter pays' principle, it is critical that 'cleaner' third-country producers importing steel into the EU should be taxed less, and / or third-country producers with a CO2 footprint lower than the EU benchmark (however it is calculated) should be exempted. Otherwise, its duty should be adjusted. The 'polluter pays' principle could also be used to adjust the mechanism to incentivise producers whose CO2 footprint is better than that of the average EU producer, setting a clear stimulus for decarbonisation. This setup would not only contribute to negative carbon leakage (reducing emissions elsewhere), but also ensure that the EU preserves its capacity to achieve its internal climate targets, by stimulating a material import flow of cleaner materials from third regions.
To sum up, any border measure to be designed smartly needs to be inclusive in terms of product scope (start from the very upstream and cover as much downstream as possible) and be flexible in terms of accounting for the actual carbon intensity of the imported products to avoid carbon leakage.
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