October 18, 2024: Nympholepsia. That’s the word for it. A state of obsession for the unobtainable. The arrival of the latest EU legislation — CBAM — last week shows once more that Europe’s politicians have an overdose of idealism but little understanding for the way businesses run.
CBAM stands for the Carbon Border Adjustment Mechanism. It essentially functions as a carbon tariff on imported goods to equalize the playing field between EU industries, which are subject to strict carbon emissions regulations, and foreign industries that may not face similar environmental constraints.
The tariff and related certification initially applies to carbon-intensive industries such as steel, aluminium, cement, fertilizers, and electricity — sectors that are at high risk of what it calls ‘carbon leakage’.
However, other industries and business sectors will inevitably follow.
In the opinion of one European Commission observer: “in the long run, this is going to be a real and present danger to the energy storage and battery industry. Europe’s politicians have proved themselves obsessional about decarbonization and have little to no understanding of the costs it might mean in practice.”
The import of raw materials for the manufacture of batteries will result in a huge certification bill. One only has to think of the cost of extraction and the airmiles of moving lithium salts in the Atacama desert to Korea or China for processing before shipping batteries on to Europe.
The political thinking, however, sounds reasonable at first glance. How can Europe’s industries be subject to rules limiting its carbon emissions when foreign firms aren’t allowed to?
But in practice it imposes a huge burden on businesses. Not only will all industries have to find analysts capable of estimating the amount of carbon emitted during the manufacture but also calculate the cost of shipping it and a huge number of often unrelated unnumerables. How deep is the carbon number that you drill down into? How much cement was poured into building the factory? Or paving the road for the goods to be shipped at the port?
To obtain the required certification a new generation of expert bureaucrats will be needed. Not just to check the authentication of the industry’s application but then to verify it on site, and then to enforce the rules, and then another level to check the rules have been enforced.
The extra cost of certification for the import of a large wind turbine, for example, has been estimated at around €900,000. If one were to retroactively certify — speaking hypothetically and for the sake of argument — the 107,000 wind turbines Europe already has, then a further €1,000,000,000,000 (approximately) would have been needed.
The result? The whole Aeolic industry which contributes to 19% of all electricity consumed in Europe would very likely not exist.
