The Emissions Trading Scheme (ETS) and the Carbon Border Adjustment Mechanism (CBAM)

The CBAM and amendments to the ETS have been enacted but not in terms of becoming own resources for the EU, as there have already been two sets of proposed amendments to the 2020 Own Resources Decision so far, neither of which have resulted in legislative amendments. Assessing the capacity of either measure to produce sufficient revenue to repay the NextGenerationEU (NGEU) debt is difficult because of multiple issues, which this chapter divides into three categories. First, there is the uncertainty generated by the EU’s conflicting objectives. Both measures depend on carbon usage in order to generate revenue, and significant continued carbon usage if they are to generate enough revenue to repay the debt. However, both measures are fundamental to the EU’s green policy objectives. Second, the potential revenue either measure could raise is based on estimated figures. Third, it is unclear whether the revenue raised will be enough to repay the full cost of borrowing in the form of both principal and interest. This chapter questions whether the EU has the ability to repay the NGEU debt with these measures, or whether has it otherwise so far developed only debt capacity.