The implementation of a border tax to price carbon-intensive imports and protect European industries will be “extremely complicated”, warned Jonathan Pershing, member of the team of the US climate envoy.
“I note that it is extremely complicated to think of the structure of a border tax,” Pershing told participants. during a EURACTIV debate last Friday (May 7).
“I do not disagree on the principle that it has value, but I think it is a huge complexity,” he warned.
The carbon border adjustment mechanism, due to be unveiled in July, aims to put a price on imports from countries where it is cheaper to pollute, in order to protect European manufacturers in the face of higher carbon costs.
But he has ruffled feathers all over the world. Emerging economies like Brazil, South Africa, India and China have criticized the plan as “discriminatory” and unfair to developing countries.
Across the Atlantic, the American envoy for the climate John Kerry warned in March that the EU levy should only be considered as a last resort, saying, “This has serious implications for economies, relations and trade.”
Compare carbon pricing policies
One of the issues is how carbon pricing policies outside Europe can be compared to those in the EU to determine whether or not the tax should apply.
Unlike Europe, the United States does not have a harmonized carbon price because it has chosen not to implement an emissions trading system at the federal level.
“We have substantial and rigorous regulatory investments and programs, but these are a little more difficult to compare and contrast,” said Pershing.
From the outset, the European regime will have to apply to all countries that import goods into the EU in order to be compatible with World Trade Organization (WTO) rules, confirmed Diederik Samsom, an official who leads the team of EU Green Deal leader Frans. Timmermans.
But if the imported products have “the same carbon footprint and a reduced carbon footprint, preferably no adjustment is necessary,” he explained.
While it may sound simple, it’s more complicated when it comes to how Europe calculates the carbon content of imported products. Manufactured products can indeed face different carbon prices – whether they are “explicit” like an emissions trading system, or “implicit” like regulations and taxes.
“Considering an excise tax type or VAT type – that’s always one of the options we look at in drafting the legislation,” Samsom admitted.
“If there’s a difference in carbon footprint, but you’ve paid across the Atlantic, your fair share of the price – whether it’s a real, straightforward price like an ETS , or a direct carbon tax, or a regulatory measure because you can monetize those measures – then that will also be taken into account, ”he added.
This could be a solution for the United States, but Pershing also expressed concerns about the impact on China or whether African countries, which may not have the capacity to take action against the climate change, will be affected.
These are the exact questions that the European Commission is currently trying to resolve, Samsom acknowledged.
Pascal Canfin, a French MEP who chairs the European Parliament’s environment committee, seemed convinced that there is a workable solution at the end of the rainbow.
“When you put the whole package together – WTO compliance, explicit and implicit, carbon footprint and, of course, the treatments that will be specific to the least developed countries – then at the end of the day you have something that flies, that is not without cooperation, which is open, which is also fair for the climate and for our industries, ”he said.
Calls for a carbon tariff at borders are increasing in Europe as the price of carbon has reached historic highs in recent weeks, reaching € 50 per tonne for the first time since the launch of the European carbon market in 2005.
Regulators should not interfere with the price of carbon, Timmermans said, so further action is needed to ensure that European companies do not relocate to places where it is cheaper to emit CO2.
“We cannot ask our industries to operate at this price point, which is necessary, without having a level playing field,” Canfin argued.
Cooperation on global decarbonisation
Despite the turmoil over the carbon tax at borders, the United States and Europe are keen to present a united front to help lead global decarbonization efforts.
EU-US relations are significantly friendlier than under the Trump administration, and both sides hope to advance international decarbonization goals ahead of the UN climate summit COP26 in Glasgow in November.
“We have a little over six months to go to Glasgow, and we need to use every hour of that time to join forces in our climate diplomacy to create year-end success because only then will we we will be able to save planet Earth, ”Samsom said.
And despite reservations about the European carbon tax at the border, the United States is also considering this idea.
“I know that President Biden is particularly interested in the evaluation of the border adjustment mechanism”, Kerry said in an interview on Bloomberg Television. “He wants to take a look at this and see if it’s something we need to deploy.”
For supporters of the tax, it makes sense for the US and the EU to join hands in support of the measure. For example, introducing some sort of minimum standard for CO2 in products entering both blocs would put additional pressure on China to decarbonize quickly.
“If we put the right standards in place, standards on the European market, to access the European market, standards on the American market to access the American market and the standards are either similar, or at least convergent… that’s all simply impossible for China to escape, ”Canfin said.
> Watch the full EURACTIV debate on video here:
[Edited by Frédéric Simon]