BRUSSELS — For once, Europe’s heavy industry is lobbying to save a climate law. 

Manufacturers are worried the European Commission is undermining the bloc’s new carbon tariff regime, a key pillar of EU climate policy, with a plan to give itself discretionary powers to suspend parts of the new measure.

They warn the move is throwing investment plans into disarray and threatening much-needed decarbonization projects.

The EU executive wants to grant itself the power to exempt goods from the just-launched carbon border adjustment mechanism (CBAM), which requires importers of certain products to pay for planet-warming pollution emitted during the production process. 

This levy is designed to protect European manufacturers — which are obliged by EU law to pay for each ton of CO2 they emit — from being out-competed by cheaper, dirtier imports. Importers of Chinese steel, for example, now pay the difference between Beijing’s carbon price and the bloc’s, ensuring it bears the same pollution costs as made-in-EU steel. 

The prospect of having that protection yanked away by the Commission has spooked European manufacturers — particularly after a dozen EU governments immediately started campaigning to apply the exemption to fertilizers in an effort to protect farmers from higher import costs. 

CBAM “is linked to investment, but it’s also linked to survival, actually, of some members,” said Antoine Hoxha, director of industry association Fertilizers Europe. “We can compete with anyone on a level playing field. But we need that level playing field.” 

Fertilizer producers aren’t the only ones worried. Most major industry bodies representing CBAM-covered sectors in Brussels — which, aside from fertilizers, include steel, iron, aluminum, cement, hydrogen and electricity — told POLITICO they and their members had concerns about the Commission’s plans. 

They warn that the new exemption clause, besides opening EU companies to unfair competition, risks undermining CBAM’s other goal of encouraging the bloc’s trading partners to switch to cleaner production methods, as it creates uncertainty over the level of EU demand for low-carbon imports. 

“We see this as some kind of sword of Damocles. If it remains like this, it’s going to send a really discouraging signal to European and international investors, and that will seriously slow down industrial decarbonization,” said Laurent Donceel, industrial policy director at Hydrogen Europe. “We would urge lawmakers to reconsider this, because we feel it undermines the entirety of CBAM.”  

Lawmakers in the European Parliament, worried about a domino effect if the Commission gives in to demands to exempt fertilizers, appear to be listening. In an environment committee meeting last week, MEPs from the far left to the center right criticized the EU executive’s proposed clause. 

The changes still need the approval of MEPs and EU governments before they can come into effect, and “it is unlikely there is a majority to do so in the Parliament,” said Pascal Canfin, a French MEP and environmental coordinator of the centrist Renew group. “Precisely because it would trigger other requests and empty [out] the CBAM.” 

Vague wording

The Commission proposed the suspension clause, known as Article 27a, in mid-December as part of a host of other changes to CBAM. The clause initially flew under the radar before governments seized on it to demand the exemption of fertilizers in early January. 

The new article gives the EU executive the power to remove goods from the mechanism in the event of “severe harm to the Union internal market due to serious and unforeseen circumstances related to the impact on the prices of goods.” The exemption remains in effect “until those serious and unforeseeable circumstances have passed.” 

Industry representatives warn that this wording is so exceedingly vague — setting no time limit or trigger threshold — that it leaves CBAM vulnerable to political pressure campaigns. 

Case in point: Fertilizers. A group of 12 governments has argued that CBAM has pushed up costs for farmers, and should trigger a suspension. But analysts and manufacturers dispute the idea that the new levy is to blame for high fertilizer costs, while also noting that increasing import prices due to CBAM are anything but unforeseen. 

Farmers “are caught in between high energy prices that lead to high fertilizer prices on one side, and on the other side agriculture commodities prices have gone down, so they are in a squeeze and they need a real solution,” said Hoxha from Fertilizers Europe. “But it’s not this.”

After a meeting with agriculture ministers in January, the Commission also clarified that any exemption under Article 27a would apply retroactively — causing “shock” among industry, Hoxha said.

Exempting goods from CBAM also weakens the EU’s carbon market, the Emissions Trading System (ETS), which obliges companies to buy permits to cover their pollution. 

Before the levy came into effect, the bloc shielded its manufacturers from cheaper foreign competition by granting them a certain amount of ETS permits for free — a practice that has been criticized for undermining the case for decarbonization. With CBAM launched, those pollution subsidies will be phased out. 

But the Commission confirmed to POLITICO that if a product is exempted from CBAM, the affected companies would continue receiving free pollution permits: “The … reduction of the free allocations for the relevant period would not apply,” a Commission spokesperson said. 

Cross-industry concern

The proposed clause has sent shockwaves through industry beyond the fertilizer sector. 

“Such emergency procedures create legal uncertainty with regards to a cornerstone of the EU’s climate policy,” steel producer association Eurofer said in a statement, noting that increasing import prices are an intentional feature of the system, not an unforeseen bug.

Cement Europe is “concerned that Article 27a would introduce major legal uncertainty into CBAM. An open‑ended exemption for ‘unforeseen circumstances,’ potentially even applied retroactively, risks undermining the predictability industry needs,” the association’s public affairs director Cliona Cunningham said.  

At Eurelectric, which represents Europe’s electricity industry, “some of our members have expressed concern about the way Article 27a has been introduced,” the association said in a statement, also stressing the need for predictability. 

“If there is a perception that CBAM obligations can be lifted for political or undefined unforeseen reasons, this may weaken incentives to invest in local decarbonisation and low-carbon production both within the EU and beyond,” Eurelectric warned. 

Hydrogen Europe’s Donceel said that for producers of fertilizer, including hydrogen-derived ammonia, “this is becoming a huge issue … even before it gets adopted or comes into force — already, the possibility of an exemption is wrecking the business case for a lot of our members and a lot of key companies in these sectors. So this Article 27a definitively came as a shock.” 

Only some metals producers supported the Commission’s proposal. 

Given that CBAM is a new and complex policy, a suspension clause “is just realistic and good policymaking,” European Metals director James Watson said in a statement. “No regulatory system is flawless from the outset; an emergency brake, activated in certain conditions, is a matter of common sense.” His association represents producers of metals other than iron and steel.

European Aluminium, which considers CBAM insufficient to protect their sector from unfair competition, wants to see Article 27a more clearly defined. But in general, “we see it basically as an emergency clause that our sector always wanted,” said Emanuele Manigrassi, the association’s climate director. 

Miffed climate champions

In response to questions, a Commission spokesperson sought to reassure industry that CBAM “is not being cancelled for any of the sectors in scope” and that it was committed to providing “regulatory certainty for companies to move forward with their investments, especially for projects aiming to produce low-carbon products and reduce greenhouse gas emissions.” 

Yet the proposal has especially rankled companies that see themselves as frontrunners in decarbonizing their industries, taking on the risk of early upfront investments.

“You need to have a strong and predictable framework on carbon pricing, especially to back up industry frontrunners,” said Joren Verschaeve, who manages the Alliance for Low-Carbon Cement and Concrete. “The risk with a provision as proposed like Article 27a is that you inject uncertainty in this whole market … I think this is the last thing we need right now.” 

The carbon border tax is also meant to encourage other countries’ industries to switch to cleaner production, as low-carbon imports are subject to lower CBAM fees. 

But for companies already planning to ramp up climate-friendly manufacturing outside the EU in response to CBAM, the Commission’s move has also raised questions about whether there will be sufficient demand for their low-carbon imports to warrant the investment. 

Norwegian fertilizer giant Yara International recently warned it would have to rethink a multi-billion low-carbon project if the mechanism was suspended.

“It’s a huge concern to us, and the uncertainty grows every day. We want to reduce our emissions, but we will not do it purely out of goodwill. We need a clear business case, and CBAM is a key enabler here,” said Tiffanie Stephani, vice president for government relations at Yara. 

“Any suspension would undermine the very companies that are taking concrete steps to decarbonize,” she added.