Paris-based group calls on EU to support proposals that recognize countries have different green policies

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The Organization for Economic Co-operation and Development is researching a new global carbon pricing plan that it hopes will prevent trade wars from breaking out between countries with different green policies.

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The Paris-based club of nations aims to follow its success by forging a first agreement between nations on corporate tax with a similar approach to carbon pricing. This would allow economies like the EU to act quickly to limit emissions while imposing reasonable border carbon taxes on imports from the most polluting countries.

Mathias Cormann, the secretary general of the OECD, called on the EU to support the plan at the meeting of EU finance ministers last weekend, according to those in attendance. Cormann proposed that the European Commission join the project.

Setting a price for carbon is widely seen as the best way to reduce fossil fuel emissions, as polluters can then effectively be taxed for the carbon they emit. One of its main sticking points, however, is figuring out what that price should be. The OECD believes it has a comprehensive solution.

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A price of carbon high enough to limit temperature increases to less than 2 ° C since pre-industrial times, as agreed to by the Paris climate agreement, is seen as a step too far by the United States, the United States. China and India. They prefer to use national regulations to reduce emissions, such as a ban on coal-fired power plants.

Instead, the EU is moving forward with a plan to extend carbon pricing to emitters in the bloc. In addition, he pledged to protect domestic industry through a border carbon tax on imported products, such as steel and cement, which emit a lot of carbon in their manufacture.

However, this approach has produced howls of protest from EU trading partners who see it as a trade tariff.

John Kerry, US President Joe Biden’s climate envoy, warned the EU in March that a border carbon tax adjustment should be a “last resort” and could have “serious implications for relations and trade “. Kerry has since said the United States could consider a similar program, although it is carefully considering the consequences.

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OECD officials privately criticize the EU’s approach. They fear that this could lead to excessively high carbon taxes at EU borders if they only take into account the explicit carbon prices imposed by other economies.

Instead, the OECD wants the EU’s approach to include the implicit carbon taxes used by other countries that have different carbon reduction measures, such as banning power plants. charcoal.

The inclusion of these measures could reduce the threats of a global trade war over environmental policy. That’s why Cormann, who previously worked in the Australian government, which has been among the laggards in shaping climate change policy, brought up the OECD plan at a meeting of 27 finance ministers. of the EU in Slovenia on Saturday.

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As part of the OECD plan, countries and economists would use a voluntary framework to agree on the best pricing of both carbon taxes and other forms of environmental regulation. This in turn could help build consent to an international framework for border carbon taxes, and thus avoid possible trade battles.

An official from the European Commission said: “We are always ready to discuss with all partners and are open to cooperation with the OECD. We also know how difficult it will be to find a global consensus on carbon pricing, and time is not on our planet’s favor.

Several large economies already operate a regulated carbon market, involving the buying and selling of greenhouse gas allowances. This includes the EU, which has seen carbon prices exceed € 60 per tonne on its trading system this year.

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China also recently launched its own limited ETS, and California runs a major cap-and-trade program.

The IMF has proposed that a carbon price of US $ 75 per tonne be applied globally by 2030, but this has not received international support.

The EU recently unveiled measures to help meet its goal of reducing the bloc’s average carbon emissions by 55% by 2030, from 1990 levels. He proposed that carbon border adjustment be at the center. of its strategy and will initially target a narrow range of more polluting imports from outside the EU, including iron, steel and cement.

© 2021 The Financial Times Ltd

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