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Early glitches in Europe’s tool to tax pollution related to products manufactured overseas highlight the challenges for companies around the world to promote greener practices.
Slow communication and technical problems are hampering companies’ compliance with the European Union’s new carbon border adjustment mechanism, which aims to protect local producers from competition from countries with lower environmental standards. As of February 28, less than 10% of companies in Germany had registered on the platform, according to people familiar with the matter.
The tool, aimed at leveling the playing field for domestic manufacturers of energy-intensive goods such as cement and steel, is the latest example of energy transition policies adding layers of bureaucracy to companies. Officials want to prevent pollution spreading outside the region as a result of the EU’s tougher climate change mitigation policies, but there are challenges getting the system up and running.
The deadline for importers to register for the scheme has been delayed by a month from the originally scheduled January 31st due to a software issue, but authorities expect it to take longer. In Germany, where much of Europe’s manufacturing takes place, the authorities responsible for implementing the new tool were only announced late last year, and companies had to rush to register.
Companies are also not sure which importers will have to register for the tool, said the people, who requested anonymity because the details are private. The European Commission initially said it would target sectors with the highest risk of outsourcing carbon emissions, such as cement, iron and steel, aluminium, fertilizers, electricity and hydrogen, but the scope is much broader, with Germany having up to 2 5,000 companies could be affected. Alone, the people said.
Dirk Jandula, president of the German Wholesale, Trade and Services Federation, explained that this is because downstream products such as screws also need to be reported. “Trading companies with less than 20 employees are being hit hard and are just overwhelmed. They need more time to get everything working.”
The EU’s carbon border adjustment mechanism works like a tariff, ensuring that the carbon price of imported goods is equal to the carbon price of domestic goods. Payments are not expected to start until 2026, but companies must start reporting greenhouse gas emissions in their supply chains this year. The commission clarified last month that there are currently no penalties for violations if delays are related to technical errors.
A spokeswoman for the commission did not respond to a request for comment.
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