By 2027, a carbon tax will be introduced at the EU’s borders. In concrete terms, companies that import iron, cement or steel from outside the EU will have to buy certificates to compensate for the difference between the price of carbon in the country of production and the price they would have had to pay if they had produced in the EU, where companies have to buy CO2 quotas when they pollute. The aim is to prevent carbon leakage from companies relocating their production from Europe to countries with less stringent climate policies.

Is this good or bad news in Luxembourg?

“We are happy,” said Gaston Trauffler, head of industrial policy at Fedil. “This mechanism will protect our producers against cheaper and more polluting imports from third countries. At the same time, it may motivate them to align themselves with our climate policy.”

This is confirmed by ArcelorMittal. “We have long supported the introduction of a carbon adjustment at the borders” creating a “level playing field.”

Limited impact on importers

This will still have a cost for Luxembourg companies that import the raw materials concerned from third countries. “As China was not at 100% capacity at the beginning of the year, our producers were able to charge higher prices,” said Trauffler, putting it into perspective: “Today, China has noticed that steel prices have risen in Europe. If the market is at a certain level, no one is going to sell too far below it.”

Above all, the import of these raw materials from countries outside the EU is relatively low, according to Statec figures. 99.9% come from EU countries for all mineral products, including cement. And 94.5% for base metals (steel, iron) and articles made of these metals.

The example of StayConcrete, which sells concrete products (made of cement) in Luxembourg, illustrates this. “All our raw materials come from the Greater Region.”

In construction, “we don't always know where they come from because we go through wholesalers,” commented , secretary general of the Groupement des entrepreneurs. He still expects a price increase.

Export disadvantage and reduced impact

However, Trauffler pointed out three limitations. The measure is accompanied by the end of free quotas, in order to avoid double protection of industries, which is not in line with the rules of the World Trade Organisation. “A steel producer who wants to win a market in Vietnam is in competition with the Chinese or Americans, who do not have the same carbon price. We should therefore preserve free quotas for production intended for export.”

There is also a lack of international coordination. “Chinese companies that want to export to Europe will do so from their most modern (and therefore less polluting) factory. And the rest of their factories will continue to export to other countries.” This risks cancelling out the positive impact of the measure on the global environment.

The shadow of the “inflation reduction act”

Finally, the EU is competing with the American “inflation reduction act,” a package worth almost €400bn against inflation. One of the measures provides for subsidies for investments in areas that will enable the country to achieve its climate objectives. To be eligible, one has to produce on American soil.

“If my factory gets old and I have to rebuild it, I have the choice of investing here. I’ll get subsidies, but I have a higher energy and carbon price. Or go to the US where I get a higher subsidy, I have a lower carbon price, I pay less for energy and I can sell in the US without paying taxes. And because I have a new plant [which is low CO2 emitting], I import into Europe and don't even pay the Carbon Border Adjustment Mechanism.”

In conclusion, Trauffler hopes that the EU will find an agreement with the US on this issue.

This story was first published in French on . It has been translated and edited for Delano.