Federal Minister of Economics Peter Altmaier (CDU) was in Brussels on Friday.
Together with representatives from the steel industry, he met the two Commission Vice-Presidents Valdis Dombrovskis and Margrethe Vestager.
It was a last-minute attempt to prevent the worst from happening.
In the middle of next week, the commission will present its “Fit for 55” climate package.
This consists of a total of twelve proposals on how the EU should reduce CO2 emissions by 55 percent by 2030, as promised.
It is also about the question of how energy-intensive industries can be successfully converted and how the steel industry, for example, can remain internationally competitive.
“Climate-friendly steel must not be more expensive than conventional steel,” warned Altmaier.
Hendrik Kafsack
Business correspondent in Brussels.
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In order to protect competitiveness, the Commission relies primarily on one instrument: a CO2 border tax. What it should look like is relatively clear after the first drafts have been pierced. The levy should initially be limited to a few basic materials: steel, aluminum, cement, fertilizers and electricity.
The amount should be based on the price for CO2 rights in emissions trading.
Duties levied on production by third countries should be credited.
On the other hand, there should be no promotion of exports.
The Commission does not only want to support domestic industry in this way.
It also wants to achieve two other goals at the same time: The instrument is intended to exert pressure on other countries to introduce a CO2 price themselves and to help pay off the debts from the Corona development fund.
The EU will need 15 billion euros annually for this from the end of this decade to the end of the 1950s.
Three billion euros a year
The CO2 border tax - or CBAM in Brussels jargon - will probably not contribute huge sums of money to this. The economist Susanne Dröge from the Science and Politics Foundation has calculated various scenarios in a new study on CO2 border adjustment. The FAZ has received the study in advance. According to this, in the most optimistic scenario, i.e. with an increase in the price in emissions trading to 80 euros per ton, the EU can expect revenues of three billion euros per year in the steel sector.
A third of this would come from Russia, and a sixth each would come from Turkey and the Ukraine. South Korea, China and India would contribute around 200 million euros based on current trade flows. In the other affected sectors, the revenues would be lower. In this scenario, Dröge expects cement to generate just 250 million euros, mainly from Turkey. In the case of electricity, it could be as much as 700 million euros, more than a third of it from Russia.
The assumption that the CO2 price, which recently rose to more than 50 euros, will continue to rise is entirely plausible.
According to Dröge, the problem is: If the EU continues to allocate CO2 rights to energy-intensive industries free of charge, it must take them into account when calculating the CO2 limit levy.
Otherwise the tax clearly violates the rules of the Geneva World Trade Organization (WTO) because imports are discriminated against.
But then, in extreme cases, the income is drastically reduced.
New trade conflicts loom
The steel industry, for example, has so far been given almost all CO2 rights to compensate for competitive disadvantages. The Commission wants to change that. It wants to reduce the free allocation for all sectors that are protected by CBAM to zero. But that's exactly what Altmaier and the steel industry want to prevent. They argue that the industry still needs free rights, also because the export of steel from the EU would otherwise not be able to keep up on third markets. As a compromise, there is already talk of a transition phase, during which the CBAM will gradually be introduced from 2023 and the free allocation will expire. If this then drops to around 80 percent, only 550 million euros remain of the income from CBAM, even with a CO2 price of 80 euros in the steel sector.
Dröge has no objection to the free allocation per se. Depending on the industry, this is better suited to protect the industry from disadvantages in international competition - even if the allocation has been too generous for a long time, she says. The problem is that the free allocation is becoming increasingly unattractive with the steadily decreasing number of emission rights on the way to minus 55 percent.
At the same time, Dröge warns that the introduction of CBAM threatens the EU with new trade conflicts. Countries like Russia, but also the USA, which has so far been less affected by the plans, are not enthusiastic. Whether the instrument is compatible with WTO law has not been clarified, says Dröge. Lawsuits have a good chance of success. In the worst case, the EU would be isolated, as in 2012 when it tried to extend EU emissions trading to international aviation. At that time, a broad alliance of international opponents met in Moscow and threatened the EU with counter-tariffs until it gave in.
Moscow is already dreaming of a new edition, warns Dröge. She also does not share the hope that CBAM will be useful as leverage to forge a climate club with the USA and others and then tackle the realignment of the energy-intensive industries together. From the USA at least there is currently no interest in it. The new President Joe Biden is relying on completely different instruments than CO2 prices, and that is difficult to reconcile with CBAM.