A design of the carbon border adjustment mechanism for an inclusive transition to climate neutrality

The proposal argues that the European Green Deal requires an effective CBAM to prevent carbon leakage and ensure carbon price signals drive industrial investment. It suggests a three-pillar approach: a 'climate contribution' based on carbon intensity benchmarks to ensure carbon costs are reflected in material prices; the EU ETS with conditional free allowance allocation to incentivise carbon efficiency; and Carbon Contracts for Difference (CCfDs) to support investments in clean production and recycling. The authors contend that these elements must work together to avoid trade conflicts, limit administrative complexity, and provide the revenue necessary to fund the transition across all European industrial regions.

• The proposed CBAM design relies on three interdependent elements: a climate contribution, the EU ETS with free allowances, and Carbon Contracts for Difference (CCfDs). No single element can function independently; for instance, the EU ETS with free allowances alone fails to incentivise material efficiency or create the scale of resources needed for an inclusive transition.
• The 'climate contribution' is designed to ensure carbon costs are reflected in material prices by making producers liable for a fee based on the material's weight, a carbon intensity benchmark, and the preceding year's EU ETS auction price. This mechanism is intended to create incentives for recycling and efficient material use while generating revenue for CCfDs.
• To prevent double charging and maintain incentives for carbon efficiency, the proposal suggests granting free EU ETS emission allowances based on a benchmark rate linked to material weight. This allocation would be conditional on producers implementing transition plans to reach climate neutrality.
• Carbon Contracts for Difference (CCfDs) are proposed to bridge the financial gap for clean production and innovative recycling, as carbon costs are currently not fully reflected in material prices. These contracts would pay for carbon savings based on a reference price determined through a competitive discovery process, such as auctions.

APA

Neuhoff, K., Chiappinelli, O., Richstein, J., de Coninck, H., Linares, P., Gerres, T., Khandekar, G., Wyns, T., Zetterberg, L., Felsmann, B., & Śniegocki, A. (2021). A design of the carbon border adjustment mechanism for an inclusive transition to climate neutrality. Climate Strategies. https://climatestrategies.org/wp-content/uploads/2021/06/PolicyProposal_CFMP_June2021.pdf

Chicago

Neuhoff, Karsten, Olga Chiappinelli, Jörn Richstein, Heleen de Coninck, Pedro Linares, Timo Gerres, Gauri Khandekar, et al. A design of the carbon border adjustment mechanism for an inclusive transition to climate neutrality. Climate Strategies, 2021. https://climatestrategies.org/wp-content/uploads/2021/06/PolicyProposal_CFMP_June2021.pdf.

Wikipedia

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BibTeX

@techreport{neuhoff2021design, author = {Neuhoff, Karsten and Chiappinelli, Olga and Richstein, Jörn and de Coninck, Heleen and Linares, Pedro and Gerres, Timo and Khandekar, Gauri and Wyns, Tomas and Zetterberg, Lars and Felsmann, Balázs and Śniegocki, Aleksander}, title = {{A design of the carbon border adjustment mechanism for an inclusive transition to climate neutrality}}, institution = {Climate Strategies}, year = {2021}, month = jun, url = {https://climatestrategies.org/wp-content/uploads/2021/06/PolicyProposal_CFMP_June2021.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }