BRUSSELS — Several major EU countries are advocating that the bloc’s carbon border tax be expanded in the coming years to help repay over €300 billion in pandemic-era debt.
France, Italy and Poland are the big hitters behind the push. They argue that the EU desperately needs new revenue streams and that the carbon border tax — which takes effect for specific sectors in 2026 — is one solution.
The levy will initially cover highly polluting sectors like steel, cement and aluminum, as well as electricity and hydrogen, and aims to ensure imported goods pay a carbon price equivalent to EU standards. But the scheme, formally known as the Carbon Border Adjustment Mechanism (CBAM), also includes a built-in 2025 review that will explore a possible expansion to other sectors and products.
Proponents are now making their case, spying an opening with the upcoming review and looming talks over the EU’s next seven-year budget, which will determine how the bloc repays the joint debt it took on in 2021 to stabilize a Covid-battered economy.
One of the plan’s biggest proponents, Poland, also currently holds sway over the EU’s policy conversation. The country will control the EU’s rotating six-month presidency until July, and its EU commissioner, Piotr Serafin, will oversee the budget portfolio for the next five years.
Of course, a CBAM expansion would only cover a small fraction of the EU’s debt payments, which are expected to run between €25 billion and 30 billion annually — up to 20 percent of the bloc’s current annual cash pot. But advocates say it’s a start.
“We need to find new own resources,” Poland’s Deputy Finance Minister Paweł Karbownik told POLITICO, using the Brussels parlance for tax revenue flowing directly to the EU budget. “And out of these new own resources on the table, the most promising could be CBAM.”
More money from CBAM
Austria, Bulgaria, Italy and Poland revived the CBAM conversation in December, when they circulated a paper arguing for an expansion of the scheme.
There are three main ways to grow CBAM: It can be extended it to new sectors, amended to cover exports as well as imports, or tweaked to include “downstream” products made from CBAM-covered imports — meaning finished or semi-finished products instead of just basic goods like steel.
In their December proposal, the countries argued for downstream expansion.
“The scope of the CBAM regulation should be extended to downstream sectors and products at risk of carbon leakage,” they wrote in the document, seen by POLITICO. They pushed for this to happen “by the end of the transition period,” which is at the end of 2025.
France also supports the expansion, according to a separate document seen by POLITICO. The collective call dovetails with the scheduled CBAM review, which will occur this year. Many CBAM-affected industries also back the idea, fearing that failure to expand the measure to downstream products could allow foreign companies to circumvent the levy.
But not everyone is convinced. Countries with greater free-market orientations fear Donald Trump’s administration will lash out — even though the carbon levy applies to EU importers, not foreign firms. With the EU on the verge of a trade war with the U.S. already, they fear it would be a risky move.
“I don’t know whether it could fly,” said one government official from a country opposed to extending CBAM, who like others was granted anonymity to discuss the internal dynamics. “The question is what Trump is going to do.”
The EU’s debt bomb
Here’s the problem: The carbon border levy is one of the few EU-wide taxes flowing directly into the bloc’s budget. And with the Covid debt bill coming due, Brussels needs fresh revenue streams.
Failure to find a solution could have dire consequences, wreaking havoc on EU funds normally reserved for everything from agricultural subsidies to defense.
The European Commission, the EU’s executive in Brussels, estimates that 75 percent of expected CBAM revenue, or €1.5 billion, would go into the EU budget. The rest would flow to national governments.
That differs from other EU revenue-raisers, such as the tax on multinational corporations or the EU’s carbon cap-and-trade market (ETS). Those schemes produce money that goes to individual governments.
That means CBAM expansion offers governments a way to raise more EU revenue — without giving up their own funds.
“If somebody thinks in Brussels that you can shift ETS from national budgets to the EU budget, this is not new money,” said Karbownik, the Polish deputy finance minister. “It’s like going around in circles, it doesn’t make sense.”
Still, the carbon border tax is far from a cure-all for the EU’s fiscal challenges.
The issue may come up next month when EU leaders gather in Brussels to discuss the bloc’s next budget. The Commission will then offer its budget proposal in July.
Zia Weise and Giorgio Leali contributed reporting.
The post Big EU countries push expanded carbon border tax to help repay Covid debt appeared first on Politico.
