Europe Is Proposing a Border Carbon Tax. What Is It and How Will It Work?
The implementation of a carbon tax at borders could come up against several complications.
On the one hand, companies wishing to sell certain products to the European Union should monitor and verify the emissions associated with the manufacture of their products. If countries cannot or do not want to do so, the EU would impose its own price. Experts say such a check is possible, but can be tricky.
Additionally, countries such as the United States, China and Russia have all opposed the border carbon tax, raising fears of retaliatory tariffs and trade wars. Countries can also try to challenge border adjustment at the World Trade Organization, although European officials say they are working to ensure the rules will withstand legal objections. (Among other things, they call this an “adjustment” and not a “tax” for legal reasons.)
The European Union has already backed down on similar proposals. Ten years ago, European officials wanted to charge foreign airlines that take off and land in Europe for the carbon pollution they produce. But the EU dropped the idea after strong pressure from the United States and China.
EU officials have left open the possibility of negotiating individual trade deals with different countries that avoid the need for carbon tariffs, especially with countries that are about to adopt climate policies. But the details should be worked out.
The EU’s proposal still needs to be negotiated between the 27 member countries and the European Parliament before it becomes law. While many EU companies, such as steel producers, support the idea of border adjustment, they are less likely to lose their free allowances under the current carbon pricing scheme because this would force them to make more drastic changes to their activities. This dispute could complicate national negotiations.
There is still a lot of debate among experts on the effectiveness of adjusting the EU’s carbon borders, said Johanna Lehne, Brussels-based senior policy adviser at E3G, a research and advocacy group that works on climate policy. But, she said, officials saw the policy as vital in addressing fears that EU climate policies would put the continent at an economic disadvantage.
“This sends a real signal that the EU is serious in its attempt to decarbonize these industrial sectors,” she said. “And they’re trying to find an answer to a lot of these national political concerns.”
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