Carbon leakage on export markets: France sketches an export certificate for CBAM goods
CBAM Weekly – Issue 119
Paris drafts a plan for export protection
A draft by the French government dated 7 October sets out how the EU could protect its producers in CBAM sectors from carbon leakage on export markets as well. So far, CBAM only offsets carbon costs on the internal market. Anyone exporting from the EU bears these costs alone against competitors without a comparable carbon price. This affects producers of basic materials as well as companies that process and export steel or aluminium.
CBAM protects the border in one direction
On imports, CBAM ensures that imported goods carry the same carbon price as goods produced in the EU. On exports, there is no such adjustment. The French paper puts it in one sentence. While CBAM protects EU production from carbon leakage on the internal market, it tends to increase carbon leakage on export markets.
The reason lies in the costs that emissions trading and CBAM create together. Upstream sectors, meaning installations under the EU ETS, receive fewer free allowances every year. Downstream producers pay more for their inputs, through the ETS for EU-made materials and through CBAM for imported ones. On third-country markets, both compete with suppliers that do not bear these costs. For exporters, the carbon price therefore remains a cost that CBAM does not offset.
The gap widens every year
The disadvantage is still small today and grows as free allocation is phased out. The CBAM factor reduces free allocation in CBAM sectors by 2.5 percent in 2026, and under current law it disappears entirely by 2034. In July, the Commission proposed stretching this phase-in to 2038 (Issue 104). That shifts the point at which the full burden arrives, but the underlying problem remains.
With the planned extension to downstream products, the question moves further along the value chain. The paper lists the export side as an open question both for today's CBAM sectors and for the ongoing extension. Companies exporting machinery, vehicle parts or other steel- and aluminium-intensive goods should therefore follow the export question as closely as the debate on scope.
Why a fund falls short in the French reading
Any export solution has to stand up to WTO rules, which prohibit export subsidies. According to the paper, such a subsidy exists where three conditions are met together, namely a financial contribution by the state, contingency on export performance and a benefit conferred as a result. France therefore examines which of these conditions can be avoided.
The paper marks support that is not contingent on exports, as foreseen under the temporary decarbonisation fund, as a route that does not hold. This is the fund Parliament has backed so far, voting in September for it to run from 2027 to 2029 (Issue 112). Paris relies on two other lines of reasoning instead. Relief would be granted as certificates rather than as payments, and it would offset only part of the carbon costs. According to the paper, the second argument only holds as long as no full compensation is granted. For exporters, this sets two models against each other, a temporary reimbursement through a fund and relief linked to CBAM for each exported tonne.
The export certificate in outline
At the core of the proposal is an export certificate. Anyone exporting a CBAM good from the EU receives certificates free of charge, with one certificate corresponding to one tonne of CO₂. The amount is based on the existing CBAM benchmarks and offsets only the share of free allocation that the CBAM factor has already phased out. Installations under the ETS could swap the certificates for ETS allowances. Downstream producers could use them for their own CBAM obligations when importing inputs, or pass them on to suppliers.
The paper is a draft. On where the certificates would come from, it states explicitly that the allocation shown does not reflect a finalised position of the French government. The model would be particularly relevant for companies that import CBAM inputs and export finished goods, because it links imports and exports in a single instrument.
Outlook
It is not yet known whether Paris will formally table the draft in Council discussions. The next trilogue on the extension to downstream products is scheduled for 30 November. Exporters of CBAM goods should start recording their export volumes per CN code now, as the French model ties relief to the exported quantity of each good and the corresponding benchmark.
Support
If you would like to understand how the export question under CBAM could affect your cost and supply chain strategy, for instance which of your exports involve CBAM goods and how the phase-out of free allocation affects your export margins, please get in touch at helge@kolum.ai.