EU to widen carbon border levy to close loopholes on polluting goods, draft shows

By Kate ‌Abnett

BRUSSELS, Dec 16 (Reuters) - The European Union plans to extend its carbon border levy to cover car ‍parts, refrigerators ‌and washing machines, draft documents seen by Reuters on Tuesday showed, in a bid to close loopholes ⁠that the bloc feared would allow foreign manufacturers ‌to dodge climate costs.

The proposal marks a major expansion of the Carbon Border Adjustment Mechanism, which from January will start charging importers for the emissions embedded in steel, cement and other high-carbon products brought into the EU.

"The proposal will extend ⁠the scope of the Carbon Border Adjustment Mechanism to address the risk of carbon leakage for products further down the value chain ​of the steel and aluminium products currently in CBAM’s scope," said ‌the draft European Commission proposal, due for publication ⁠on Wednesday.

Construction products for bridges, power transformers and cables and farming machinery would also be covered by the levy, the draft plans showed.

The EU chose the new products based on their exposure to "carbon leakage", ​or the risk that industries would relocate outside Europe to avoid the region's strict climate policies.

EXPANSION AIMS TO STOP CLIMATE POLICY EVASION

The EU carbon border levy aims to shield Europe's industries from cheaper, high-emission imports and push manufacturers worldwide toward cleaner production. The existing policy has prompted criticism from trading partners including ​China, India ‍and South Africa, who say ​it unfairly penalises emerging economies' industries.

A second draft Commission proposal, seen by Reuters, showed the EU plans to use 25% of the revenue collected by the carbon border levy to compensate European manufacturers over 2028-2029 for higher costs they face as a result of the carbon border fee on imports.

The EU expects the carbon border tariff to generate 2.1 billion euros ($2.47 billion) in revenue by 2030.

Industries would only be eligible for this ⁠support if they are investing in cleaning up the carbon footprint of their manufacturing, the draft said.

The proposal responds to demands from industries that the EU ​compensate European exporters to help them compete in foreign markets where rivals do not pay CO2 costs.

However, the draft proposal did not specify that the fund will target exporters. Some EU officials have expressed concern that a rebate or subsidy for exporters would flout WTO rules. The EU ‌has said its CBAM is fully WTO-compliant.

A Commission spokesperson declined to comment on the draft, which could still change before it is published.

($1 = 0.8505 euros)

(Reporting by Kate Abnett, Editing by Charlotte Van Campenhout and Louise Heavens)