Is there a need for a European tariff on imports with a carbon footprint?

The European Commission is studying the implementation of the so-called ‘carbon border tax’, but faces numerous issues that make the task difficult. The first of all: can it clash with the rules of international trade?

The European Union is determined to place the climate emergency at the centre of the debate in this new community cycle that is starting. The newly appointed President of the Commission, Ursula Von der Leyen, made this clear in her inauguration speech last Sunday, and also the next day, during her speech at the opening of the United Nations Climate Summit in Madrid (COP25). “The European Green Deal is our new growth strategy,” he said. The goal is to make Europe the first zero-carbon continent by 2050.

What is not so clear is that this leadership in ambition manages to crystallize into efficient measures that earn the acquiescence of all members of the club. One of them is the introduction of a tariff on carbon-footprint imports. Von der Leyen has entrusted the Commissioners of Trade, Phil Hogan, and Economy, Paolo Gentiloni, with the elaboration of what will be called the Carbon Border Tax, within the package of measures of the Green Deal. But there are many experts who warn of the complexity of the task. “It’s going to be difficult to get this medium up and running. There are a lot of technical issues that need to be elucidated,” warns Arancha González, executive director of the International Trade Centre (ITC), a joint development agency of the United Nations and the World Trade Organization (WTO). The first of these: Can this measure clash with the rules of international trade?

The European Union committed in the Paris Agreement to reduce polluting emissions by between 40% and 55% by 2030 and reach zero emissions by 2050. To this end, it does not rule out revising the energy taxation directive, which could translate into taxes on the generation of _CO2 in European production. But just as Brussels will propose measures at Community and national level (these are the responsibility of the member countries), it will also pursue with other initiatives a double objective: to pressure other countries to reduce their emissions and, at the same time, to guarantee that the companies of the 27 can compete on equal terms with those outside the EU.

The tax on imports of goods that use very _{CO2-intensive} technologies in their production process would serve, in the words of the President of the Commission, “to ensure that our companies can compete on a level playing field and avoid carbon leakage”. A kind of tool to avoid what the EU would consider environmental dumping. Little else is known about the future tax, other than that it would begin to be applied in a number of selected sectors, it would be gradually extended, and that it should be “fully compatible with WTO rules”. Sources from the European Commission acknowledge the difficulty of implementing the measure respecting these rules. “We have an internal debate to see how it can be done. Until the spring of next year there will be a very intense political debate about it,” they explain.

“An EU carbon border tax would be difficult to design, costly to implement and would surely lead to legal challenges. But if done correctly, there are reasons to think it could succeed,” the Think Tank Centre for European Reform said in a report. The fact that it is a measure proposed by many countries, including the United States, but not implemented by any, gives an idea of its complexity.

“How is it going to be done? Is there going to be a carbon passport for products? Who is going to decide?” asks González. In the event that, instead of taxing by sector, the EU decided to tax all products coming from a country that has not signed the Paris protocol, it could run into the problem that a producer might say that the issue is not what his country does, but what he does as a producer.

If a measure is to be taken at the border to compensate for the fact that imports have more carbon than domestic production, it should respect the rules of international trade. These allow a country to decide what level of protection it wishes to impose, including environmental protection. But they ask for two things: that the measure be non-discriminatory and that it be honest. “The objective must be for others to reduce their _CO2 emissions, not to protect domestic producers from external competition, because not all European producers are more efficient in terms of emissions than all foreign importers,” says González, who believes that “there are other ways to do it. There are other mechanisms that may be more interesting. Why is there no regulatory mechanism as has been done with the data protection regulation, which allows others to also align with that mission?”

“The ideal would be to forge an international consensus,” agrees Federico Steinberg, principal investigator of the Elcano Royal Institute, although he qualifies the difficulty of achieving it, given the crisis in which the WTO finds itself as an institution and that does not seem the best time in the middle of the trade war. Steinberg advocates incorporating in a necessary reform of the WTO, which the EU also defends, “that would introduce environmental standards in international trade.”

On the other hand, the implementation of the measure could also have collateral effects, such as the relocation of companies to non-EU countries, or meet with opposition from the bloc of member states that also do not support the more ambitious objectives of the European Commission, formed by Poland, Hungary and the Czech Republic. In addition, “emerging and developing countries have accused the EU and the US of wanting to use both the environment and labour rights as protectionist excuses,” Steinberg said.

Source: Expansión