Canfin MEP: ‘Europe must put in place policies to protect, promote green industries’

By Frédéric Simon | EURACTIV.com

07-12-2022

"The battle for the location of zero-carbon industrial supply chains is underway," says Pascal Canfin, the chairman of the European Parliament's environment committee. [© European Union 2022 - Source : EP]

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With its upcoming Battery Directive and carbon border tax, the EU has the opportunity to build the foundations of Europe's future green industrial policy and respond to America's Inflation Reduction Act (IRA), says Pascal Canfin.

Pascal Canfin is a French MEP for the centrist Renew Europe group in the European Parliament, where he chairs the assembly's environment committee (ENVI). He spoke to EURACTIV's energy and environment editor, Frédéric Simon.

The EU is about to conclude negotiations on its Battery Directive. What are the key points of this directive, and how can it respond to the US Inflation Reduction Act?

The battery directive is an important element in the industrial sequence in which Europe finds itself: the battle for the location of zero-carbon industrial supply chains is underway.

And this international competition is very positive because it is the condition for us to win the climate battle. So it's a good thing that it's happening. And in this space, of course, there is competition – with the Chinese and the Americans in particular.

For Europe, having a regulation on batteries, which is a key industrial object for the green transition – for cars, but also bicycles and electricity storage –is an essential part of our industrial sovereignty while advancing our ecological transition.

Will this text make it possible to locate part of the production in Europe?

Yes. In fact, on batteries, we’re playing on both the regulatory and the financial aspects.

On the regulatory side, by increasing the environmental performance of batteries – by strengthening circularity, recyclability and recycling requirements – which means that we capture more added value in Europe. Because if Europe's potential is limited in the mining aspect, on the circularity and reuse aspect, the added value can be very largely localised here.

This is the first element of the localisation of the value chain. The second element is the European Battery Alliance, which I believe is an excellent example of industrial success at the European level.

At a time when the question of Europe's industrial policy is being raised in the face of America's IRA, I think that the Battery Alliance is the model to follow and duplicate for other technologies – for example, the new generation of solar panels of electrolysers or carbon-free hydrogen.

So this battery text is an element of Europe's green industrial strategy.

On the carbon border tax, negotiators are also aiming to reach an agreement in the coming weeks. What are the main topics that remain to be addressed?

The decisive trialogue will take place on Monday (12 December). And I think we have a good chance of landing.

This is a world first; the European Union will be the first trade area in the world to put a carbon price on its imports – the same as the one in force on our domestic market, in order to be WTO-compatible.

This text will inevitably generate changes in behaviour outside Europe, which is the objective: we want to use the power of the European single market to establish a green trade policy and set international competition policies in line with the climate challenge.

Is there agreement on the sectors that will be covered by this new carbon border adjustment mechanism (CBAM)?

The crux of the discussion next Monday is to decide whether the scope defined by the European Commission in its initial proposal can be extended – knowing that Parliament wants a broader CBAM.

By broader, do you mean extended to additional sectors?

Yes, by integrating hydrogen, some polymers, and other processed products.

In my opinion, there is an important figure to bear in mind: in the Commission's initial proposal, CBAM covers sectors that account for 55% of Europe's industrial emissions. And in the trilogue, we are discussing increasing this to 60 or even 65%. So even if the number of sectors covered by CBAM is limited, the impact in terms of CO2 emissions is significant.

The second question is to determine the extent to which CBAM will cover processed products. This is an important point for the European Parliament: we believe that a clear timetable must be set for processed products so that they are covered by CBAM.

It is obvious that we cannot decide next week on an exhaustive list of processed products because it requires a lot of technical analysis by the European Commission. But the timetable must be clear.

What types of products are we talking about?

Let's take an example: if a car manufacturer imports steel into Europe from Turkey, it will pay the CBAM. But if the same manufacturer imports into Europe a car made in Morocco with Turkish steel, he will not pay for it. This is a problem that must be addressed.

So the question is to avoid company relocations through processed products?

Exactly. Now, it is obvious that the location of production sites does not depend only on carbon prices on a single raw material, in this case steel for cars.

It is, therefore first necessary to determine precisely what the real risk is, how much of the processed product contains materials covered by CBAM – such as aluminium, steel, or cement. And once this is determined, we can estimate the share of the processed product that CBAM should cover.

This is one of the big issues that remain to be addressed during the trialogue. And this is a priority for Parliament, precisely to avoid the relocation scenario I was talking about.

What other topics remain to be addressed in the CBAM Regulation?

There are two which are linked to the reform of the EU carbon market: first, how do we address exports? And secondly, what about the allowances that are currently distributed free of charge to industry under the EU Emissions Trading System (ETS)?

CBAM was designed to neutralise the issue of CO2 emissions from imports. On the other hand, if we take away free allowances from manufacturers, then their exports will potentially be penalised because of the additional cost linked to the ETS.

There are two possible reactions to this. The first would be to offer export subsidies to industries covered by CBAM. But this option has been ruled out by the European Commission, which considers that it would violate WTO rules, which is most likely true. This is a solution that could work, but that would jeopardise the very existence of CBAM.

The other option, which is within the mandate of the European Parliament, would be to grant free allocations reserved for the share of exports covered by decarbonised investments.

For example, industrialists could receive free allowances for their production of zero-carbon steel or cement to compensate for the additional costs associated with these green technologies, which require significant investments. And here, it seems to me totally legitimate to have a compensation system.

This compensation system, linked to green investments, seems to me to be in conformity with Article 20 of the GATT, and therefore WTO-compatible. I think we need to fully explore this avenue. Because today we are facing a European Commission that is ideologically blocked on this subject.

The aim is to avoid relocations in three or four years’ time, which would be very damaging to our climate policies and our green industrial policy.

So these export subsidies would come in the form of free ETS allowances?

What Parliament is asking for is something for exports. And this is currently not included in the Commission's proposal or in the Council's mandate.

Given the international competition in which we find ourselves, particularly with the American IRA, Europe must put in place policies to protect and promote its green industries.

[Edited by Alice Taylor]

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