ECB ARGUES FOR SYNERGY BETWEEN EU ETS AND CBAM
On 23 January, the European Central Bank (ECB) published a working paper arguing for more synergy between the EU Emissions Trading System (EU ETS) and the new Carbon Border Adjustment Mechanism (CBAM), which was agreed to by co-legislators in December. The paper finds that the EU ETS has contributed to cutting greenhouse gas emissions in the EU by 2 to 2.5 percentage points per year through costlier emissions and more stringent caps. However, some carbon leakages occurred as declining emissions in regulated industries were offset by intensification elsewhere. Outsourcing of production to other countries or industries helps companies to dodge the payment of EU ETS allowances. This also becomes increasingly tempting as coverage of the EU ETS is extended to new industries. To mitigate carbon leakage, the ECB argues for a careful joint design of the EU ETS and CBAM. This would help to avoid a scenario where the CBAM is applied only to a restricted list of imports, putting the EU at a greater risk of carbon leakages without reducing global emissions.