Most countries claim to have a serious plan to cut greenhouse gas emissions. The EU actually has one, a €1tn European Green Deal that aims to make the entire 27-nation bloc carbon neutral by 2050. It includes a measure that until now has been considered too unwieldy, provocative and legally troublesome for any nation to adopt: a carbon border tax. This is a necessary step, but it must be taken with care.
Technically, the European Commission is proposing a “carbon border adjustment mechanism” that would shield EU companies against cheaper imports from countries with weaker climate policies. It would not start until at least 2021 and could take the form of a levy on imported goods, based on average prices in the EU’s emissions trading system, though other options are possible.
Either way, the idea is conceptually attractive. First, it would stop what is known as “carbon leakage”, when climate action in one country pushes polluters to shift to another, and overall emissions stay much the same. In the process, it would reduce the risk of making domestic industries less competitive than rivals abroad. It also offers the distant but tantalising prospect of the EU joining forces with like-minded nations to create “climate clubs” big enough to prod laggards into faster emissions cuts.
This seems a remote possibility when the US president is preparing to pull the world’s biggest economy out of the Paris climate agreement. Yet US lawmakers have proposed carbon border schemes in the past and Joe Biden is one of a number of Democratic hopefuls promising such a measure ahead of November’s presidential election.
Whatever the election outcome, the EU must overcome a series of hurdles for its own scheme, starting with administrative complexity.
One of the biggest objections to carbon border measures is the difficulty of calculating the carbon content of, say, a car made of components from many countries, each with different climate and energy policies. The EU is sensibly looking at rolling out its system in stages, perhaps starting with simpler goods such as cement before extending it to other products.
The scheme must also be compatible with World Trade Organization rules, meaning it cannot discriminate against any individual trading partner or favour domestically-produced goods over imports. If it raises consumer prices, some form of compensation may be needed. It must be fair to smaller, poor nations that have historically contributed a far smaller volume of climate warming emissions than richer industrialised countries.
Little of this will be easy, as Brussels officials well know. Experienced trade hands are right to wonder if the scheme will ever be implemented. The threat of action alone may stir reluctant nations into taking climate change more seriously.
If it does go ahead, it is likely to worsen the EU’s trade frictions with the US, which has already expressed concern about the proposal. If Washington deems that the scheme amounts to protectionism, “we will react”, the US commerce secretary, Wilbur Ross, told the FT last week. It is unlikely to be alone.
Whatever scheme the EU comes up with, it will not be perfect. But as global emissions keep rising, it is increasingly difficult to argue against measures of this kind. Critics should bear in mind there is an obvious way for countries to avoid the cost of a carbon border scheme: cut their own emissions faster. That might end the need for any such tax at all.
Source: Economy - ft.com
