A revolutionary new tool to tackle climate change. The European Commission presented this last Wednesday with the so-called carbon border levy (carbon border adjustment mechanism). This concerns a levy on products from countries where CO2emissions are not taxed or are taxed less than in the EU. The levy will be introduced gradually from 2023 and will initially apply to the import of steel, iron, cement, fertilizer, aluminum and electricity.
The great thing about this mechanism is that it removes a thirty-year-old mantra: that you undermine your own economy by pursuing serious climate policy yourself, while competing countries do not. The tax removes the financial incentive in the EU to move production to countries with less ambitious climate policies.
Countries outside the EU protest. They see the carbon border tax as an unfair barrier to free trade. The resistance does not only come from developing countries and emerging powers such as China, India, Brazil and South Africa. It also comes from Russia, and even the United States, and to a lesser extent the United Kingdom, who are wary of the potential impact of the measure.
The resistance of China and the US is particularly striking. These are countries that have recently boasted about their ambitious climate policy. President Joe Biden even wants to head the international climate table. In September 2020, Chinese government leader Xi Jinping told the UN that China wants to be climate neutral by 2060 and that annual emissions will decrease by 2030.
By protesting the border charge, these countries are indirectly admitting that their actions fall short of their ambitions.
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The maximum tax will be equal to the price of CO2 in the market of the European emissions trading system (currently about 55 euros per tonne of CO2) and that makes the difference between European climate policy and that of other countries very visible. Through the border levy, the EU is forcing other countries to start a conversation about climate policy.
The telephone conversation between President Macron, Chancellor Merkel and Xi in April was telling. According to the Chinese report of the conversation, Xi rejected the tax at this “climate summit” but is open to more cooperation on climate. According to the muted German press release of the “talk”, Germany welcomed China’s goal to be carbon neutral by 2060 and China’s proposal to tighten short-term goals, among other things. In Russia there are already whispers about the introduction of a CO2price to avoid being hit hard by the EU border levy. And the Democrats in the US suddenly presented on Wednesday with an unfinished proposal for a “polluter import fee’.
The wisdom that you undermine your own economy by pursuing serious climate policy, while competing countries do not, is now obsolete
European Commissioner Frans Timmermans therefore emphatically states that he hopes that the EU will not have to use the border charge, because countries use the CO2emissions from their own energy-intensive industry and energy sector. Indeed, Norway, Iceland and Switzerland are excluded. Exporters from countries such as the United Kingdom and South Korea can claim a lower levy based on an already paid CO2-price in the ‘home country’.
According to the European Commission, the proposal complies with international trade law. It has been agreed at the World Trade Organization that countries should not create trade barriers, but environmental considerations have often proved to be an exception. According to the Commission, this also applies now. In addition, the levy is in principle equal to the amount that producers in the EU pay themselves. A special arrangement for poorer developing countries is still being considered. This would also help the EU build support for the carbon border tax ahead of the next climate summit in Glasgow in November.
Also read last September’s interview of Clara van der Wiel with Frans Timmermans: ‘No delay for polluting industry’
Member States and the European Parliament can still adjust the plans and the Dutch government previously said it was “positively curious” about the levy. But what if the pressure from the US, China and other countries continues and they even threaten a trade war with the EU? Will the EU then put the border tax on hold, as happened before when the EU planned to tax international flights through the emissions trading system? It seems unlikely.
Firstly, because most EU countries and the European Parliament seem to be positive, want to protect their own industry and are interested in the proceeds of the tax. Secondly, because there is the necessary support from European industry, from a competitive point of view. And thirdly, because the tax makes it so visible that the great climate promises of other countries are barely reflected in actual CO .2reduction policy have been implemented.
The largest economy in the world, because that is the EU, therefore has an important trump card through its trading power to simultaneously increase the pressure on other countries with ambitious climate policy. The Netherlands must help the EU to keep its back straight, because if major polluters stop at fine words, we will not solve the climate crisis.