Carbon border adjustment in the power sector

In the framework of the European Green Deal, the European Commission is expected to make a proposal on a carbon border adjustment (CBA) mechanism in 2021. CBA is a tool to impose a fee in a way or another on any product imported from a country without a carbon pricing plan and it is supposed to adjust the price of the imported goods to be equal to those produced in the EU area.

Carbon leakage has traditionally been recognised as a challenge for industrial sectors. However, carbon leakage is also increasingly discussed in the context of cross-border power trading between EU member states and third countries. Currently, 13 EU countries are physically connected with 11 non-EU countries and 33 TWh of electricity was imported to the EU region in 2019. About 2/3 of this was coal-based electricity. Cross-border power trading between EU member states and third countries is expected to increase and potentially result in increasing carbon leakage.

Fortum’s position on carbon border adjustment in the power sector discusses carbon leakage and various options to establish a carbon border adjustment mechanism for the EU power sector.

In Fortum’s opinion, the most suitable instrument for tackling carbon leakage in the power sector would be a guarantee of origin (GoO) system either combined with an obligation for the electricity supplier to purchase and surrender EU emission allowances (EUA) or with a carbon border tariff. These options should be further investigated.

Read Fortum’s position on carbon border adjustment in the power sector:

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