Launched in October 2024 on the initiative of Medef, the Economic Front brings together economists, academics, business leaders, and think tanks to formulate concrete responses to the structural challenges facing the French economy.
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Victor Lequillerier, economist, President of BSI Economics A specialist in international economic and financial issues, he has worked on the relationship between competitiveness, transition, and foreign trade. This note, written in April 2025 in the « Échanger » group, focuses on the Carbon Border Adjustment Mechanism (CBAM).
The note proposes strengthening the CBAM by extending its scope to intermediate and finished goods incorporating inputs and creating an Export Compensation Mechanism (ECM), financed by CBAM revenues, to neutralize all or part of the carbon price gap with target markets and improve the price competitiveness of European exporters.
The analyses and recommendations expressed in this contribution are those of the author alone and do not represent the official position of the Economic Front.
Download the PDF:front-eco-1-propositions-macf
Findings :
- The Carbon Border Adjustment Mechanism (CBAM) is a European tool that aims to support the decarbonization of our economies while combating the phenomenon of « carbon leakage. » It consists of applying a carbon tax to imports from outside the European Union (EU) that is equivalent to the tax in force within the EU.
- At this stage, it only applies to a limited number of product subcategories, including: steel, aluminum, cement, nitrogen fertilizers, hydrogen, and electricity (approximately $11.1 billion for French imports between 2019 and 2022, or 3.5% of total non-EU imports and 1.6% of total imports). However, imported goods consisting of products subject to the MACF are not taxed.
- Since 2023, the MACF has been in its initial phase, during which importers declare emissions for imported goods covered by the scheme. From January 2026, the declaration phase will be supplemented by the purchase of MACF certificates linked to emissions, with the price of the certificates calculated according to the carbon price in force on the European market. In May 2027, an initial declaration will be made based on imports recorded in 2026.
- The MACF is a tool with several weaknesses that need to be corrected and supplemented. At this stage, the MACF is incomplete, as it does not take into account finished and/or semi-finished products that incorporate products subject to the MACF (e.g., the steel content of a motor vehicle). Furthermore, the system tends to weigh on the competitiveness of companies located downstream in international value chains (excluding companies benefiting from inward processing). The mechanism also has other aspects that could be improved: a system whereby exporters declare the carbon intensity of their products, the absence of a compensation mechanism, full coverage of importers regardless of their size, etc.
- By improving the MACF, it could become a powerful tool that would strengthen our cost competitiveness and protect our industry without distorting its original purpose.
Proposal 1 : Strengthen the MACF
- Rather than a declarative system for assessing the carbon intensity of imports, it would be more appropriate to determine the carbon intensity of imports based on data on the average electricity mix of the country or region where the product was manufactured. This data is widely available (at least at the country level) and taking it into account when calculating carbon intensity would avoid any potential underestimation of carbon intensity in imported products.
- By extending the number of products subject to the MACF to include intermediate and finished products incorporating components subject to the MACF, the system would be strengthened and would provide greater protection for our industries specializing in the downstream stages of global value chains.
- The automotive sector is a perfect example of a sector that should be eligible for such an expansion. Imports of vehicles from outside the EU averaged around $18.2 billion per year in France between 2019 and 2022, representing 5.8% of our total imports from outside the EU.
- Goods produced by strategic sectors would also benefit from being included in the list of products subject to the MACF. The use of technical input coefficients would make it possible to highlight sectors (e.g., equipment and mechanical machinery production) and therefore other products that could be subject to the MACF.
- Including other products in the MACF would make it possible to protect other European industries through an existing mechanism (net economies of scale compared to creating a new mechanism), without being a subsidy or a customs barrier as such (which guarantees a certain degree of sustainability for the mechanism compared to other measures, without the risk of being designated as a protectionist barrier that does not comply with international law).
- Including other products would also generate additional tax revenue (in the example given, by including vehicles alone, MACF revenue would increase nearly threefold). This would be welcome in the current budgetary context and could be used to fund other mechanisms.
Proposal 2 : Use MACF revenues to boost our price competitiveness
- One potential use for this revenue would be to fund an « Export Compensation Mechanism » (ECM).
- While Europe appears to be well advanced in terms of carbon pricing with its Carbon Market, other countries are also catching up (Asia in particular, and China especially). However, pricing differences remain due to immature markets, with carbon prices often higher in Europe (nearly $70 in Q1 2025).
- The ECM would therefore aim to fully or partially offset the carbon price difference between France and a target export country for a given product.
- Let’s take, for example, a country called Z, outside the EU, where the carbon price remains lower than in the EU. A French company could export its product to Z by offering a selling price that would include the carbon price, not the one charged in France, but the one charged in Z. If France does indeed export its product, the MCE would compensate for the price difference ex post. The diagram below clearly illustrates and summarizes this mechanism with a concrete example.
Diagram showing gains in export competitiveness linked to the introduction of the carbon price
an Export Compensation Mechanism (ECM) linked to the MACF
- Without the ECM, the cost of European carbon is fully charged during the transaction, potentially increasing the likelihood that the French product will be considered less competitive and that the export will not take place.
- With the ECM, this probability is greatly reduced and the probability of exporting is maximized. The competitiveness of the exported good in terms of price increases significantly, without compromising the environmental impact of the MACF or its effectiveness.
- It therefore appears that the gain in price competitiveness would be significant compared to a system without the MCE.
- In the event that country Z does not yet have a carbon market, there are two possibilities: i) non-activation of the MCE or ii) activation of the MCE based on the difference in carbon price compared to that of the market of the first competitor outside the EU for the product in question.
- This mechanism « closes the loop » in that it allows MACF revenues to be reallocated to a goal that is common to that of the MACF: avoiding carbon leakage and preserving the competitiveness of European industry.
You can find analyses by other economists from the think tank as part of the Economic Front’s focus groups directly on the BSI Economics website.
