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EU plans world’s first carbon border tax on emission-heavy imports

The European Commission is to propose the world’s first carbon border tariffs to penalise carbon-intensive imports and protect European businesses subjected to EU carbon pricing.

In the EC’s European Green Deal roadmap, released on Wednesday, the commission states that it will “propose a carbon border adjustment mechanism, for selected sectors, to reduce the risk of carbon leakage. This would ensure that the price of imports reflect more accurately their carbon content.”

As explained in greater depth here, a carbon border tariff would be difficult to implement for three reasons: 1) It will be extremely hard to calculate the so-called “carbon content” of products made overseas; 2) it will lead to increased prices for imported products, which would be unpopular among voters and potentially drive up inflation; and 3) import tariffs tend to lead to trade wars that destabilise the global economy.

The roadmap explains: “As long as many international partners do not share the same ambition as the EU, there is a risk of carbon leakage, either because production is transferred from the EU to other countries with lower ambition for emission reduction, or because EU products are replaced by more carbon-intensive imports.

“If this risk materialises, there will be no reduction in global emissions, and this will frustrate the efforts of the EU and its industries to meet the global climate objectives of the Paris Agreement.

“Should differences in levels of ambition worldwide persist, as the EU increases its climate ambition, the Commission will propose a carbon border adjustment mechanism, for selected sectors, to reduce the risk of carbon leakage. This measure will be designed to comply with World Trade Organization rules and other international obligations of the EU.”

In addition, the roadmap proposes extending the sectors that are subject to the bloc’s climate pricing mechanism, the Emissions Trading System (ETS), with a view to adding shipping and aviation. Additional revenue from these sectors for their emissions allowances could be put towards paying for additional climate mitigation expenses, it adds.

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