The Border Carbon Adjustment Mechanism is a new regulation that aims to balance the conditions of competition between European manufacturers who pay a carbon quota and producers based outside Europe who do not pay it (our CBAM presentation article). This device aims precisely to fight against carbon leaks. Its field of application covers 6 sectors:

• Iron & Steel,
• Aluminum,
• Cement,
• Fertilizer,
• Electricity and hydrogen.

‍But why these sectors of activity and not others?

The CBAM and the EU ETS emissions trading market

The answer lies in the fact that the MACF is coupled with the European emissions trading market (Emissions Trading System, or EU ETS in English). This carbon market allows the regulation of emissions from European companies through a system of capping and trading rights to emit greenhouse gases (emission quotas). It currently covers almost 40% of total EU emissions.

The European emissions trading system addresses “greenhouse gases from specific activities, focusing on emissions that can be measured, reported and verified with a high level of precision” (European Commission).

However, some activities concerned with the European market are not covered by the MACF, as illustrated in the table below.

Sectors excluded from the CBAM but present in the EU ETS

The sectors covered by the MACF are currently limited to the most emitters. This list could be extended to other industries after the full establishment of the mechanism, starting in 2026. One may wonder why this mechanism does not apply to certain sectors of the European carbon market (ETS) or to other sectors (outside the ETS) such as textiles or cosmetics.

For example, we note that plastic, responsible for 3.4% of global emissions in 2019 (OECD), is not included in the MACF.

Reasons for the exclusion of certain sectors from the CBAM and the ETS

Sectors with low carbon emissions are not covered by the EU ETS

Several arguments may explain the absence of certain industries from the scope of the ETS. So the sectors few emitters seem to be excluded from the scope of the carbon market. For example, we can cite the cosmetics sector, which would represent between 0.5 and 1.5% of global emissions, a significantly lower share than that attributed to heavy industries (metals, cement, etc.).

In addition, the The emissions trading market is addressing emissions from the production phaseHowever, it is observed that the different stages of the life cycle of cosmetic products do not have the same environmental impact. In fact, carbon emissions come mainly from the packaging of products (covered by the ETS via the plastic and/or paper and cardboard sectors) and from their use. The production phase, including energy consumption, would represent a maximum of 5% of total emissions (Quantis, Make Up The Future). We therefore understand that the ETS (and therefore the MACF), which has historically focused on emissions generated by the manufacturing phase (aviation and maritime transport aside), is not the most suitable tool for regulating carbon emissions in this sector.

Limiting the costs of climate standards for competitive industries

Some highly competitive industries could also benefit from a kind of protection: we avoid putting them at a disadvantage compared to non-European competitors who are not subject to carbon pricing.

This is the case, for example, with maritime transport, which was completely excluded from the ETS before being partially integrated into it since 2024. Travel to or from a third country is thus covered up to 50% of emissions, intra-EU travel. (departure and arrival gates located in the EU) being 100% covered. Since few countries impose a carbon price on maritime transport, the European Union did not include it in the ETS to avoid penalizing European actors.

The challenges of accurately measuring carbon emissions in the textile sector

Another reason can also be put forward to explain the fact that some sectors are not covered by the ETS and the MACF: the difficulty in accurately measuring the carbon emissions associated with the production phase.

Textile is a good example: it represents a significant part of carbon emissions (up to 10% of global emissions according to the highest figures) but those generated by the manufacturing phase are more complex to measure. Or, the precision of the measurement of emissions is one of the main criteria of the European carbon market.

The difficulty of measuring carbon in the textile sector is explained by the numerous steps and the diversity of actors involved in the manufacturing phase of articles, as illustrated in the diagram below. For example, for the manufacture of a 100% cotton coat in Asia, the transformation of the product, after recovery of the raw materials, represents 50% of the emissions in the garment's life cycle. In addition, the raw material processing phase is divided into 4 different stages (spinning, weaving, finishing, manufacturing), often taking place in several countries, which multiplies the intermediate transport phases and the number of parties from which to retrieve emissions data.

Impact of Other Environmental Standards on Certain Industries

Some industries - cosmetics and textiles for example - are also concerned by other environmental standards (excluding ETS) aimed, among other things, at regulating carbon emissions. This is for example the case of the AGEC law in France. The anti-waste law for a circular economy aims to support the change in production and consumption patterns in order to reduce the environmental impact of our society.

The AGEC law thus aims to limit waste and its harmful consequences on biodiversity and the climate.This policy should reduce carbon emissions from various activities by imposing the end of disposable plastic, the improvement of consumer information (e.g.: repairability index), solidarity reuse or even by fighting against planned obsolescence.

Another European regulation (2023/1115) aimed at limiting deforestation was recently published in the EU Official Journal in 2023. The regulation will prohibit the marketing or export of products whose production contributed to deforestation or forest degradation after December 31, 2020 (Ministry of Ecological Transition...). Sectors as varied as cocoa, rubber or even wooden furniture are directly impacted by this new environmental standard. By helping to preserve forests, this European standard is also more broadly in line with the fight against global warming: by fighting deforestation, we protect natural carbon storage capacities and contribute to the achievement of carbon neutrality.

Energy Importance and Emissions of the CBAM Sectors

The sectors covered by the CBAM are by definition sectors already covered by the European carbon market (ETS). These sectors were selected because they represent a significant portion of global emissions And that the Calculation of these emissions can be done accurately.

Industries with high energy consumption (included in the EU ETS table) generate 22% of European Union emissions in 2019 (European Commission). According to the World Steel Association, in 2020, emissions from steel production corresponded to 7% to 9% of global CO2 emissions. Cement production, for its part, would represent 7% of annual global CO2 emissions, according to the GCCA (Global Cement and Concrete Association).

The most energy-intensive sectors are generally very carbon-intensive: whether through the direct use of fossil fuels (gas, etc.) or the consumption of very carbon-intensive electricity, as is the case in China, for example, where coal plays a central role in electricity production.

Finally, it will be necessary to monitor the list of sectors covered by the MACF because new industries could be integrated in the coming years, such as plastic or glass.