The first glimpse is emerging of a levy the European Union is drawing up to ensure its Green Deal environmental rules aren’t undone by nations with weaker standards. The measure being drafted by the EU’s executive arm will penalize the greenhouse-gas pollution produced by factories outside the region that ship their products into Europe. The so-called Carbon Border Adjustment Mechanism is meant to ensure that domestic industries most at risk from stricter climate policies aren’t hurt by the Green Deal.
Designing a carbon border tax that both works and complies with World Trade Organization rules is a major challenge. The European Roundtable on Climate Change and Sustainable Transition, a research group in Brussels, consulted lawmakers, EU trading partners and affected industries and set out its outlook in a major study of the options policy makers could adopt.
“The mechanism will require a broader framework and is no silver bullet on its own,” said Andrei Marcu, one of the authors of the study published by the European Roundtable on Climate Change and Sustainable Transition. “Starting in 2024-2025 we could see some sort of a pilot program. I hope it will be a weapon that the EU will never have to use.”
For the EU, the mechanism could be a way to hit two birds with one stone: protecting its industry while prodding other regions to move ahead with similar climate action. Policy makers are aware they risk opening a new source of international trade tensions with the levy at the same time that the coronavirus pandemic is taking a toll on the economy.
Carbon in Trade
Intensity of CO2 emissions embodied in exports
Source: OECD
The 27-nation bloc is seeking to tighten its 2030 emissions-reduction target to 55% from 1990 levels. The existing goal, agreed only in 2014, is a cut of 40%. That would have a big impact on industry.