Vulcan Insight

EU to adopt carbon border tax despite US concerns

13 May 2021

A cornerstone of European Commission President von der Leyen’s flagship EU Green Deal – the carbon border adjustment mechanism – aims to prevent carbon leakage of any goods imported to the EU from third countries. Yet, since its initial mooting in von der Leyen’s 2019 application speech to the European Parliament, the proposal has been met with concerns and criticisms from countries around the world.

Speaking of the proposal, which is expected to be published on 14 July, while presenting her Commission’s political priorities to the European Parliament in July of 2019, von der Leyen said that “to ensure [European] companies can compete on a level playing field, I will introduce a Carbon Border Tax to avoid carbon leakage,” adding that it  “should be fully compliant with World Trade Organisation rules”. She also promised that, while she intended to only start with a number of selected sectors, it should be further expanded in the future.

The carbon border adjustment mechanism, as it is officially called, aims to put a price, or tax, on imports from countries with lower social or environmental standards allowing manufacturers in such countries to undercut domestic EU manufacturers who have to abide by strict EU environmental standards. Not only would such a carbon border tax be an economic soft-power push by the EU to influence and drive more environmentally friendly industry policies in countries such as China, India or Brazil, it would also protect European companies and jobs.

According to these third countries, who also happen to be some of the EU’s closest trading partners, von der Leyen’s proposed carbon border tax would be discriminatory and thus in breach of World Trade Organisation (WTO) rules. In April the three countries, joined by South Africa, expressed their “grave concern regarding the proposal for introducing trade barriers such as unilateral carbon border adjustment” in a joint statement.

In response to the concerns, the Commission argues that it’s measure will, in fact, be WTO compatible as it is set to apply equally to all countries exporting goods into the EU’s Single Market, including rich and developed countries such as the United States. According to the Commission, whether any imported goods would be caught up on the mechanism would be depending on that country’s domestic climate policies. If imported products have “the same carbon footprint and a reduced carbon footprint, preferably, there’s no adjustment needed,” commented Diederick Samsom, Head of Cabinet to Commission Executive Vice-President Frans Timmermans who is responsible for the Green Deal, at a recent event.

While not entirely opposed to the concept of a carbon border tax, in fact, President Joe Biden included one in his campaign promises and recently renewed his interest in the topic, the US Government continues to have considerable concerns about the Commission’s plans, having raised concerns and questions about the proposed make up and methodology at a recent meeting between climate envoy John Kerry and Mr. Timmermans.

Predominantly, these concerns revolve around the Commission’s plan to account for and compare the different climate action models and measures in countries around the world. The US, for example, does not operate a federal Emissions Trading System (ETS) as the EU does, instead focusing on public and private investments and federal regulation.

With the Commission set to adopt and publish its carbon border adjustment mechanism in mid-July as part of the “Fit for 55” package, there still remains some time to overcome the concerns and put down the first marker in the global drive to de-carbonise international trade.