New working Paper on EU’s Carbon Border Adjustment Mechanism
A recent preprint study conducted by researchers from ETH Zurich, RWTH Aachen University, and the Net Zero Lab reveals important insights about the European Union's Carbon Border Adjustment Mechanism (CBAM) and its potential application to the chemical industry. The comprehensive analysis, examining 4,470 global chemical production facilities, offers a data-driven perspective on both the promise and limitations of this climate policy tool.
Current CBAM Coverage Reveals Significant Gaps
The EU CBAM aims to prevent carbon leakage by ensuring imports face carbon pricing equivalent to EU-produced goods. However, when applied to key chemical products like ethylene and polyethylene, the researchers found the current framework only accounts for approximately 50-60% of actual production emissions.
This limited coverage stems primarily from incomplete tracking of scope 3 emissions - particularly those embedded in fossil feedstocks and precursors earlier in the supply chain. The study notes that this gap creates potential perverse incentives, where production might shift to processes with lower direct emissions but higher overall lifecycle emissions.
Two Critical Improvements Needed
The research team identifies two essential policy enhancements:
Include fossil feedstocks and refinery products: A significant portion of chemical production emissions originate during fossil feedstock production. Expanding CBAM to include these products would substantially improve emission coverage - increasing it to 93% for ethylene and 94% for polyethylene.
Implement high fallback default values: The current average-based fallback values fail to incentivize accurate reporting from high-emission producers. Setting these values to reflect the highest-emitting facilities (top 10%) would dramatically improve reporting compliance and overall emission coverage.
Complex Implementation Challenges
The study acknowledges the technical challenges of implementing these improvements. Refinery processes are highly integrated, making emission allocation complex. However, the researchers note that established Life Cycle Assessment (LCA) methodologies offer promising approaches that adhere to ISO standards.
The chemical industry's intricate supply chains present additional complications. With multiple production pathways leading to identical products, comprehensive coverage is essential to prevent circumvention.
Implications for Climate Policy
This research comes at a critical time, as the EU plans to reevaluate CBAM's expansion to chemicals by 2030. The findings suggest that while CBAM shows promise for mitigating carbon leakage in the chemical sector, careful design considerations are necessary.
The researchers emphasize the importance of engaging chemical industry experts both in policy design and implementation stages. Their expertise will be crucial for monitoring and verification of reported emissions data, ensuring CBAM contributes effectively to an equitable net-zero transition without unintended consequences.
As climate policies continue evolving globally, this study offers valuable insights for policymakers seeking to balance environmental ambition with practical implementation in complex industrial sectors.