EU seeks to sell carbon permits to pay for tax administrators

Good morning and welcome to Europe Express.

Selling carbon allowances has become a go-to solution for the European Commission when it wants to raise money for something else. We’ll look at the latest idea on how to use this mechanism to fund the administration around a yet-to-be-established carbon border tax.

In Berlin, commission chief Ursula von der Leyen pledged €1bn in energy assistance to the Western Balkans, with half of the grants going for energy bill support for households and businesses this winter.

We’ll also examine the commission’s latest thinking when it comes to fighting “overtourism”, a phenomenon that has come back with a vengeance after the pandemic lull.

And we’ll look at how Giorgia Meloni’s first trip to Brussels went down yesterday.

(Com) mission creep

Another row is brewing over the use of proceeds from the sale of carbon emissions permits. This time around, it’s about paying for EU commission officials and administration costs, writes Alice Hancock in Brussels.

To fund the running costs of the EU’s new carbon border adjustment mechanism — a green tax that forms a core part of the bloc’s “Fit for 55” climate laws — the commission has suggested that it tap revenues from the sale of allowances bought by companies to pay for their carbon emissions.

The subject of using revenues from the emissions trading system is already a tetchy one following a blow up over the commission’s attempt to fund €20bn of the REPowerEU initiative through sales of extra carbon allowances.

But Brussels estimates that with the number of officials it could need and the extra work implementing CBAM, the outlay could amount to €35mn, according to a non-paper circulated among member states and seen by Europe Express.

The commission is pushing for a decentralised model where national governments run the highly complex tax system, which will charge importers for the carbon output of their products.

The European parliament, on the other hand, wants a fully centralised system so that there is no “forum shopping” for companies to try and play off different member states’ systems.

The next round of talks between the commission, parliament and member states on the topic is scheduled for next week.

In the paper, the commission says that if the parliament and council want the commission to take on more of the administration “in light of the already difficult budgetary situation”, it will be “impossible” for the EU to cover the €30mn or so costs during the two to three year transition period before CBAM starts to generate its own revenues.

At least eight member states, including Germany, Austria and the Netherlands, are against taking the funds from ETS revenues, which should be directed towards national sustainability projects.

“It’s commission creep. It sets a precedent for them to use money from us for their own resources,” one EU diplomat said. Another said they were not keen to put forward funds “where it is not clear what the structure would look like”.

Mohammed Chahim, who is leading the parliamentary negotiations on CBAM, said that member states knew that CBAM needed funding to get it up and running and that not all of them were being frank about where ETS money was being spent currently: “I have an overview of how much money should go into innovation and sustainability and not every member state is following up on their promise.”

Chart du jour: Feeling the squeeze

Millions of mortgage holders across the eurozone are reckoning with a series of aggressive rate rises by the European Central Bank in response to rampant inflation. For households, the impact of monetary tightening on their mortgages comes as energy and food prices are already taking up an expanding share of their budgets.

Too much of a good thing

After the collapse of tourism during the Covid-19 pandemic, this year popular destinations have struggled with overcrowded sights, long queues at airports and unaffordable rentals (some called it “revenge tourism”). In response to the plight of some cities creaking at the seams and other destinations struggling to attract more visitors, the EU commission next week will propose rules targeting online platforms, writes Javier Espinoza in Brussels.

The proposal seeks to oblige sites like Expedia, Booking and Airbnb to collect and share EU-wide data on the number of people using their services with the view to help local authorities come up with “effective and proper” policies to curb an oversupply of tourists, according to people with direct knowledge of the legislative proposal.

The proposals will fall short of calling for a ban on tourists once a certain threshold is reached, but policymakers hope that more transparency on the numbers will help inform balanced responses as mayors come under pressure to take action against short term rentals and rowdy visitors. (Barcelona and Amsterdam had to impose spot checks to make sure noise and other rules are being observed.)

While unmanaged tourism adds pressure to big cities, it can be very valuable to places where the industry is only nascent to have the exact numbers of visitors so as to better plan or develop new services to attract more people.

“Short term rentals can create huge value in villages where tourists are coming and spending their money,” said a person briefed on the legislative proposal. “But local authorities often lack enough data to institute the right policies.”

The proposal will have to be negotiated with the European parliament and member states before becoming law by 2024. It comes after concerns that platforms such as Airbnb have exacerbated the issue of housing shortages with the company capping the number of days properties can be rented out annually in places like Paris and Amsterdam.

EU internal market commissioner Thierry Breton told Europe Express that the proposals will aim to “give local authorities the data they need to support a sustainable short-term rental sector, fight illegal listings and contribute to a more balanced tourism ecosystem.”

No Martian

Giorgia Meloni chose Brussels as the stage for her international debut, and she seems to have got off to a good start with the EU top brass, writes Giuliana Ricozzi in Rome. 

“We are not Martians but people made of flesh and bones,” Meloni said after meeting the heads of the EU institutions. (Though that was not the main concern in Brussels, rather that she’s the first far-right leader of Italy since Mussolini.) “On the other side we found people willing to listen to us.”

Migratory flows are still a hot topic for the new Italian government that intends to adopt a less tolerant approach than the Draghi government. Meloni said she told her interlocutors that the priority for her country is now “the defence of the external borders”.

EU commission chief Ursula von der Leyen said Meloni’s first trip abroad was a “good opportunity to exchange on critical issues”, from the support to Ukraine and the energy crisis, to the NextGenerationEU funding and migration.

An EU official said after her meeting with EU council chief Charles Michel that they had a “constructive and substantial” discussion for more than two hours, including over dinner.

”Prime Minister Meloni reiterated her intention to be a loyal and solutions-oriented partner within the EU,” the official said.

What to watch today

1. G7 foreign ministers meet in Münster, Germany

2. EU commission chief Ursula von der Leyen receives Lithuanian Prime Minister Ingrida Šimonytė

Smart reads

• COP gloom: International co-operation on climate is stalling, tensions abound over the war in Ukraine and other geopolitical frictions, and rising food and energy prices are curtailing the appetite of low-income nations to cut CO₂ emissions — these are a few findings in briefing by the European Council on Foreign Relations ahead of next week’s UN climate summit (COP27) in Egypt.

• New role for ESM: The European Stability Mechanism, the eurozone bailout fund, in this blog post argues for a “fiscal stabilisation capacity” for the eurozone. The ESM has been struggling to find a role in the euro area’s crisis-fighting architecture, being associated with bailouts and austerity programs following the eurozone financial crisis.