It’s Thursday, December 15, and EU negotiators have agreed to implement the world’s first carbon border tax.
In a global first, the European Union has agreed to impose a carbon tax on goods imported into the supranational trade bloc, requiring emissions-intensive foreign companies to pay the same CO2 taxes as their European competitors.
“This is a historic agreement for the climate,” Pascal Canfin, chair of the European Parliament’s environment committee, said in a statement. The tax — covering imports of iron, steel, cement, fertilizers, aluminum, hydrogen, and electricity — is intended to prevent European industries in the process of decarbonizing from having to compete with cheaper products made in countries with less stringent environmental regulations.
Currently, the EU’s cap-and-trade system to reduce greenhouse gas emissions charges highly polluting industries like steel- and cement-making about 91 euros ($96) per metric ton of carbon emitted. Most other countries, including the United States, don’t make companies pay for their climate pollution.
Some countries in the developing world have criticized the new carbon border tax as “discriminatory,” saying it would unduly penalize those that bear little responsibility for causing the climate crisis and make it harder for them to transition to renewable energy. EU policymakers, however, argue the law is needed to raise environmental standards globally.
EU lawmakers still have to hammer out some of the tax’s final details during negotiations this weekend, including how fast to phase out a system that distributes free carbon permits to industries in Europe. This system, intended to make European companies more competitive on the global stage, could violate World Trade Organization rules if it exists alongside the border tax, analysts have warned.
Lawmakers are also expected to discuss whether the agreement should include industry-backed export rebates, which would offer a sort of refund on CO2 fees for products shipped out of the EU. The European Commission, the EU’s executive branch, opposes the rebates over concerns that they could be seen as an export subsidy — another World Trade Organization violation.
Pending final approval from EU member states and the European Parliament, the EU’s carbon border tax is expected to be phased in starting in October 2023. An initial transition period will only require importers to report their products’ greenhouse gas emissions, with the full carbon duty kicking in by 2026.
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