Carbon tax will be applied to goods imported to the European Union from 2026,the flagship measure in a sweeping suite of European Commission policies unveiled last week to meet the bloc’s 2030 climate target. The tax will mean companies importing iron and steel, aluminium, cement, fertilisers and electricity to the EU will have to buy a certificate for every tonne of carbon dioxide embedded in their goods. In theory, it puts importers’ costs on a par with those of firms within the EU that have to pay for similar certificates in the EU’s internal carbon market. “The idea is to put foreign producers on a level playing field,” says Johanna Lehne at think tank E3G. Formally known as the carbon border adjustment mechanism (CBAM),the scheme is the first of this scale and scope globally. The CBAM’s central aim is to combat “carbon leakage”,the risk of a company in the EU responding to the union’s climate policy costs by relocating outside the bloc to a country that may have a cheaper, but more polluting, energy supply A secondary goal is to provide an incentive for non-EU countries to increase their ambition on climate change. For instance, a fertiliser firm in Turkey should have to pay lower taxes to ship its product to the EU if Ankara used policies to cleanup the country’s electricity grid. However,the border tax has generated a storm of push back even before it was officially outlined in July 2021, with China, Australia and other countries warning against trade barriers and protectionism. It remains to be seen if the scheme can win over critics and play an important role in fighting climate change. At the most extreme end, the EU could be forced into a climbdown akin to one it made in 2012 after it included flights in its carbonmarket. At a fundamental level,the tax will have to be compatible with World Trade Organization(WTO) rules. Before the tax will be accepted, companies will have to start reporting their products’ carbon from 2023 to the end of 2025.
Source:
Magazine New Scientist: 2021-07-24, page 18
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