By Kate Abnett
BRUSSELS, Dec 17 - The European Union will expand its carbon border levy - a fee charged on imports of high-emission goods - to cover car parts and washing machines, according to draft European Commission proposals due to be published on Wednesday.
The proposals also aim to tighten loopholes that the Commission worries could allow foreign firms to dodge the fee, which is currently in a pilot phase and will start imposing costs from January.
The EU's Carbon Border Adjustment Mechanism
- the world's first carbon border tariff - will impose fees on the CO2 emissions of imported goods including steel, aluminium, cement and fertilisers.
The policy, known as CBAM, is designed to shield European industries against cheaper imports from countries with weaker climate rules. But it has irritated trading partners including China, India and South Africa, which say it unfairly penalises their economies.
EU SEEKS TO AVERT WORKAROUNDS
Despite these objections, draft EU legal proposals seen by Reuters on Tuesday showed the bloc will double down on the carbon border fee: expanding it to cover downstream products that use a high share of steel and aluminium, including construction products, power grid components and machinery.
Leon de Graaf, acting president of the "Business for CBAM Coalition" of companies and industry groups, welcomed the EU plans, which he said targeted "products that face the highest risk of carbon leakage" - the risk that manufacturers relocate abroad to avoid Europe's strict climate policies.
The EU also plans to clamp down on foreign companies if there is evidence they are under-reporting their emissions to dodge the levy.
In this scenario, the EU could impose "default" emissions values on that country's products, resulting in a higher CBAM bill, according to sources familiar with the plans, which could still change before they are published.
That aims to address concerns among EU officials that foreign companies - in particular those in China - could strategically adjust by sending low-carbon products to Europe, while continuing to produce high-carbon goods for other markets. This would allow them to dodge the EU levy without making their overall production any greener.
A Commission spokesperson declined to comment on the draft plans.
While CBAM will charge importers for the emissions associated with their imports from 2026, companies will have until September 2027 to buy and surrender CBAM certificates to the EU to comply.
Since Brussels announced its carbon border levy in 2021, China, India and Brazil - while criticising the EU policy - have begun developing or expanding their own carbon pricing systems.
"They have changed behaviour. That is the success of CBAM in my book already," said Totis Kotsonis, a partner at law firm Pinsent Masons who advises on trade issues.
Brussels also plans to use 25% of the revenue from the border levy to compensate European manufacturers for higher costs associated with the carbon border levy. This support would only go to industries that invest in lower-carbon manufacturing.
(Reporting by Kate AbnettEditing by Frances Kerry)
