First step towards a carbon tax at the borders of Europe

Greening the imports of the European Union (EU) to reduce the carbon footprint of the Old Continent and protect against unfair competition? The European Parliament is in favor. In a resolution supported by the ecologist Yannick Jadot, the MEPs who are members of the Committee on the Environment, Public Health and Food Safety outlined the main lines of this new tool aimed at penalizing products from countries with less stringent climatic standards.

It will be put to a vote in plenary on Wednesday March 10. Barring a dramatic twist, the text should be adopted, and thus allow the European Commission to know in which direction to move forward. The legislative proposal from the European executive is expected in June.

“Protect yourself from unfair competition”

In the hemicycle, Monday March 8, Yannick Jadot defended his resolution: “This carbon border adjustment mechanism will be the right tool to protect us from unfair competition, so that companies that export to the European market meet exactly the same constraints as those that we impose on our companies on European soil. ” The latter must in fact, according to the “polluter pays” principle, pay the rights to pollute, through the CO emissions trading system.2.

Spanish economist and MEP (Renew Europe), Luis Garicano takes the example of a vehicle, made of many materials – including aluminum, steel and glass. “If these materials are produced in the EU, you have to pay 40 € per tonne of CO2 produced. But if they are produced outside the EU, no payment linked to the cost of carbon is applied. Result: we lose competitiveness if the materials come from a Member State. It puts the industry in a difficult position and it does the planet a disservice. Thanks to the new mechanism, we will pay for CO emissions2, regardless of the location of production. “

A new allowance trading system

In fact, more than 40% of allowances are allocated free of charge to European manufacturers – to face international competition and dissuade them from relocating. According to the resolution of the European Parliament, these free “rights to pollute” should be abolished. Not surprisingly, this idea scares the industry. The BusinessEurope employers’ lobby calls for the maintenance of free quotas “At least as long as the new mechanism is in the testing phase and has not yet proven its effectiveness”.

To tax imports, a new CO emissions trading system2, on a global scale, could see the light of day. “If the products come from countries where the emission rules are less ambitious than those of the EU, a carbon price would be applied”, explains the European Parliament in a press release.

Implementation in 2023

The prices charged would be equivalent to those of the carbon market already existing within the EU, to comply with the WTO non-discrimination rules. The EU could set a maximum level of carbon emissions linked to its imports, which would result in a limited number of allowances put up for sale. If this track is followed by the European Commission, the new mechanism would therefore not take the form of a customs duty strictly speaking.

Before the European Parliament, Paolo Gentiloni, Commissioner responsible for the economy, explained that his institution had not yet decided. He especially stressed that this future mechanism is “A climatic measure and not a protectionist measure”. He expects the new mechanism to be put in place in 2023.

5 to 14 billion euros per year

The tool could, according to the European Commission, bring in between 5 and 14 billion euros per year, on which the Union is counting to help finance its recovery plan (750 billion euros in total). The 27 European heads of state and government have already explained that these benefits will have to take the form of a new own resource for the Union.

→ READ. European taxes to finance the recovery? “It’s a bit simplifying”

“No one is sure how much will be collected”, warns Alice Pirlot, researcher at the Center for Business Taxation at the University of Oxford, who notes: “If we want this money to be used to pursue environmental objectives, there is no guarantee that it will actually be used in that sense, once incorporated into the EU budget. “


The European carbon market

Created in 2005, the EU Emissions Trading System caps the overall level of allowable emissions and, within that limit, allows European industries to buy and sell emission allowances.

Free quotas are distributed to companies in the most polluting sectors (steel, construction, chemicals, etc.) so that they remain competitive with the rest of the world. The carbon border adjustment mechanism could spell the end of these free quotas: European companies as well as those outside the EU would all pay “rights to pollute” and would thus be placed on an equal footing.


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