France and Germany will press the European Commission for EU-level measures to
prevent industrial relocation after tighter climate rules, according to a
document. Spain, Italy and other major economies are expected to support the
initiative. Over the next decade the EU will progressively phase out free
allowances under the emissions trading system, forcing high-emitting sectors to
pay for CO2. The EU is simultaneously implementing a carbon border adjustment
mechanism (CBAM) to charge imports for embedded carbon, but the document warns
exporters are not yet adequately protected. It says that without compensatory
measures rising carbon costs for EU producers would weaken their competitiveness
in third-country markets and could cause carbon leakage, requiring an EU-level
solution.
