AFRY has today published an impact study report on the EU Carbon Border Adjustment Mechanism (CBAM), focused on electricity imports from Great Britain. The study was commissioned by Nemo Link and a group of interconnectors and transmission companies.
The report found that, although the principles and intentions of the EU CBAM are positive in the pursuit of decarbonisation, there are issues with the method of application which, unless addressed, unduly increase the cost of electricity imports into the EU from GB, presenting adverse outcomes for policy objectives, in particular:
Two issues identified in the report:
- Risk of significant over-statement of emissions assumed for electricity imports from GB, as values based on carbon intensity of historic fossil fuel generation are likely to be applied.
- Excessive carbon price exposure for imports from GB, linked to practical obstacles to demonstration of a carbon price having been paid in GB by emitting generation and exposure of GB zero-carbon generation to carbon costs.
Resulting in the following adverse outcomes:
• Putting at risk development of offshore grid/cross-border infrastructure needed for the energy transition;
• Harming delivery of decarbonisation policies by presenting barriers to low carbon projects; and
• Frustrating efficient market operation by unduly blocking flows that would otherwise be economic.
Action is needed to ensure efficient use of cross-border capacity. The report highlighted mitigation options as follows:
- Short-term actions:
- Implicitly recognise UK carbon price having been paid in GB for any electricity imports from GB into the EU via implementing acts.
- Allow use of recent GB system carbon intensity measure as basis for GB export emissions.
- Long-term actions:
- Advance political agreement to create full ETS linkage
- Ensure developing GB-EU implicit coupling model fulfils market integration requirements and political alignment on condition fulfilment.
“EU CBAM in its current form could create a very significant trade barrier for electricity imports into the EU even if the carbon prices in the third country are identical. This would negatively impact all dimensions of the energy trilemma. Political will is urgently called upon to get the identified issues addressed and an EU CBAM exemption for the UK e.g. via relinking the ETS schemes should be examined,” said Bart Goethals, Chief Commercial Officer, Nemo Link Ltd.
Full report can be downloaded here.
If you’d like to learn more about this study on the EU CBAM, AFRY will be hosting a webinar presenting the insights from its assessment, outlining the issues identified and their implications, on Monday 25th March 14.00 CET. Register HERE.
