Over the summer, you may have noticed the EU's roadmap of how it plans to reduce its carbon emissions by 55% by 2030 (benchmarked to some point in the 1990s), a plan it labelled "Fit for 55." Central to that plan is the idea that the EU will impose a carbon tariff on imports from countries with lower carbon emissions rules than the EU (which, I am guessing, is all countries outside the EU). While there are plenty of geopolitics at stake reading between the lines, the enticing element of this tariff plan is its implications for a global carbon tax, as explained in the article in the url below:
"A global carbon tax is viewed by many economists as the most efficient approach to decarbonizing industry, but creating one has always seemed a political impossibility. A new European Union carbon border tax just might start to change that."
The key is the tax on all imports to the EU from countries with more lax standards on carbon emissions than the EU:
"The levy—called a 'carbon border adjustment mechanism,' or CBAM—is part of a wide-ranging package adjusting EU rules to meet new climate ambitions. The measure is intended to both level the playing field between foreign and domestic producers and cut the risk that local companies relocate outside the EU to avoid the bloc's stringent rules. As drafted, CBAM could open a path to a global carbon price by establishing a cost of carbon on some imports into the EU, one of the world's biggest markets."
The hope seems to be that the U.S. will join the EU by imposing a similar tariff (see here). This is partly because if the EU and U.S. have a similar approach, it has a better chance of affecting other countries, but also it would avoid the complicated eventuality of the EU imposing a costly tax on imports from the U.S. Another motivator, as with all tax proposals, is the opportunity to collect revenue. In this case, the U.S. would prefer to collect the revenue themselves, as opposed to allowing the EU to collect it instead:
"While that level of cooperation currently seems unlikely, the estimated €9 billion in annual CBAM-related income the EU anticipates by 2030 might tempt politicians to act so that they collect the cash instead of Brussels."
The proposed effect is broad – so much so that the commentary around the tariff is that it will affect, in essence, all industries and products:
"CBAM will target aluminum, cement, fertilizer, power, steel and iron. Companies from regions without similar carbon costs would need to buy CBAM credits for the verified emissions released in the production of their imports into the EU. The price will be linked to the carbon cost determined by the EU's Emissions Trading System, currently over €50 a metric ton."
But, again, the tantalizing prospect is that the effect will be global and, in essence, establish a global tax on carbon:
"A global carbon price remains a fanciful notion for now, but something resembling it could take shape if the EU's CBAM, like its ETS, sets an example for other regimes to learn from. Much depends on the ambitions of Washington."
Take care
David
David Chandler
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Europe's Carbon Prices Are Going Global
By Rochelle Toplensky
July 15, 2021
The Wall Street Journal
Late Edition – Final
B12
