THE STATE OF THE EUROPEAN UNION REPORT. Europe in a period of transition

THE STATE OF THE EUROPEAN UNION 54 covered by the community ETS system, but that have been manufactured in third-party States following environmental standards which are less demanding that in the EU. This tariff is specifically planned to be introduced progressively, over a decade, from 2026. Initially, it will only affect imports of steel, aluminium, cement, fertilisers and electricity. The CBAM thereby wishes to avoid environmental dumping from territories that do not have emission rights regimes similar to the community ETS, giving them an incentive to increase the price of carbon at source. With this tariff, producers from third party states will effectively have to meet European environmental standards to be able to access the Domestic Market. The CBAM will be a powerful geopolitical instrument for the external aspect of the European Green Deal and a further demonstration of the EU’s global regulatory power. This power gives access to the EU Market in exchange for companies adopting the standards defined by the EU (in this case environmental). Standards that, in fact, end up becoming global, as major companies tend to take the highest European requirement levels as a reference for their world business (Bradford, 2020). On the other hand, the CBAM would make it pos- sible to counteract the perverse incentive for European companies to delocate their production outside the EU in search of more relaxed legislations (carbon leakage). So then, when approving this proposal, the EU should avoid falling into any type of protectionism or unfairly imposing trade barriers, prioritising domestic products over products from third party countries. This would be a violation of World Trade Organisation rules on the matter. In this respect, it is important to highlight that as well as providing a level playing field from the point of view of environmental requirements, the main aim of the CBAM is not to favour national producers but to encour- age compliance with the climate agreements signed by the international community. In fact, the CBAM would form part of what has been called the external dimension of the European Green Deal. The EU is aware that it would not be capable of achieving those global climate goals alone as it only represents 9% of greenhouse gas emissions in the world. Consequently, it must roll out a full strategy to provide an incentive for other countries to push ambitious climate action policies. The CBAM might be an important measure for this, but it should be accompanied by other climate diplomacy measures that consider both the geopolitical context and the difficulties that its application might bring about in other countries. In this respect, the EU must act as a constructive partner by setting up green alliances with its trading partners. Special attention should be paid to China and the USA, the two main countries in terms of world carbon emissions, whose policies are also going down the road of reducing emissions, although at a much less demand- ing pace than the EU. In this respect, it would be important for the EU to help create a “carbon club” which is as wide-reaching as possible to avoid the carbon leakage phenomenon, so that the cost of remaining outside it would be increas- ingly high for states. At the same time, it might be hoped that merely set- ting up the CBAM will have a dissuasive effect on some countries and will lead them to discourage CO2 emission in a similar way to the European ETS.These circumstances would make them immune to the tariff application. All the same, it would be naive to ignore that applica- tion of both the CBAM and the European Green Deal in general would not foster resistance in some countries, par- ticularly in places that are more dependent on fossil fuels (Leonard et alt. , 2021). In this respect, developing countries (DC) would deserve special treatment so that CBAM ap- plication would not raise an obstacle to their fight against poverty, while promoting their ecological transition. On this point, cooperation and financing for devel- opment is going to play a key role to facilitate these countries’ transitions towards greener, more digital and fairer economic models. It is not in vain that the new fi- nancing instrument for development from the EU “Global Europe” assigns 25 % of its funds to meeting climate goals (Manrique, 2021).