Europe faces world skepticism about its CO2 border tax – Watt Up With That?

From the Global Warming Policy Forum

Date: 07/05/21 Reuters

The European Union faces an uphill battle to convince trading partners that the world’s first tax on carbon imports is fair, workable and a necessary part of the bloc’s attempted green revolution, as opposed to a protectionist instrument.

The EU will present a legislative package on July 14th to reduce net greenhouse gas emissions by 55% by 2030 compared to 1990 levels.

As part of the plan, he will outline a so-called Carbon Border Adjustment Mechanism (CBAM), which aims to reduce emissions by creating financial incentives for more environmentally friendly production and advising against carbon leakage as the relocation of activities to countries with less pollution Emission restrictions known.

The bloc will want to avoid the kind of consequences it suffered following a separate environmental move in 2018 when it removed palm oil from its list of sustainable biofuels and sparked legal challenges from Indonesia and Malaysia with the World Trade Organization

Earlier, an EU attempt to charge foreign airlines for CO2 emissions from flights to and from Europe threatened a trade war after the US aviation industry attracted fierce political opposition and China announced that it would withhold aircraft orders. The European Union had to announce in 2012 that it would suspend the law.

Bernd Lange, chairman of the European Parliament’s trade committee, said the CBAM could prove the source of trade disputes – especially with the United States if Brussels fails to come to an agreement with Washington.

“We have to work towards an understanding so that this CBAM does not end up in a WTO case. It’s a big job for the next few months, ”he said in a webinar.

The Commission has stated that its plan will be WTO compliant and fair, and oblige importers of goods like steel to buy emission allowances at the same price as domestic manufacturers. Report ad

However, the requirement of EU manufacturers to continue to benefit from free EU certificates for the CO2 market could lead to problems if imports are not granted a similar benefit.

A July 14 draft of the proposals shows the free permits would end, but manufacturing industries are expected to do a lot to keep them.

The benchmark prices in the EU Emissions Trading Scheme (ETS), the largest CO2 market in the world, reached record levels of over 58 euros per ton this month, partly in response to expectations of the border tax.

As the EU says so and Washington has agreed to discuss the plan, other countries have raised concerns. Australian Prime Minister Scott Morrison calls all CO2 tariffs “trade protectionism under a different name”. Russia has announced that it is violating trade rules.

Andre Sapir, Senior Fellow at the Brussels think tank Bruegel, who testified before Parliament about the CBAM, says that the European Union must look beyond mere legality.

“There is also the issue of fairness. Advanced countries were long-term issuers. Deforestation, advanced countries did too, ”he said.


The WTO grants developing countries preferential treatment, as does the EU with regulations for the poorest countries. If they don’t extend to the CBAM, the fees could cost $ 16 billion in exports from developing countries to the EU, says the think tank at the Center for European Reforms.

Even a WTO-compliant system of emerging market allowances could disrupt trade if it adds an unwieldy administrative burden.

Companies in countries like South Korea with existing emissions trading systems could easily adapt to the CBAM. Elsewhere, exporters would have to submit extensive data on their direct CO2 emissions and those of their energy sources and then convince the European Commission of the reliability of the data.

Otherwise there could be an unfavorable failure calculation.

“The burden of proof is on the other side,” said Hosuk Lee-Makiyama, director of the trade think tank ECIPE. “CBAM may be a great move for trade negotiations, but will there actually be incentives to cut carbon emissions?”

The complexity of the system prompted the European Commission, at least initially, to concentrate on a few basic materials – iron and steel, aluminum, cement, electricity and fertilizers, which make up around 5% of EU goods imports.

However, there may be ways for exporting countries to circumvent this. Thijs Vandenbussche, climate policy analyst at the European Policy Center think tank, points to possible substitutes for cement that may not be subject to carbon tax, such as fuel ash or blast furnace slag.

Read the full GWPF article here.

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