The European Commission on Wednesday initiated plans for the world’s first carbon border tax on imports of carbon-intensive steel, cement, fertilizers, aluminium, and electricity, as part of a programme to meet its new climate target.
According to the commission, the border levy, which is designed to protect European industries from competitors abroad whose manufacturers can produce at lower cost because they are not charged for their carbon output, should be phased in from 2026.
A news report by Reuters on Thursday on the proposed border tax indicated that under the proposed fiscal regime, a transitional phase from 2023-25 will require importers, including those importing electricity, to monitor and report their emissions.
In addition, the importers would also be required to buy digital certificates representing the tonnage of carbon dioxide emissions embedded in the goods they import.
The proposal indicated that the price of the certificates would be based on the average price of permits auctioned each week in the EU carbon market. The EU carbon prices have hit record levels of more than 58 euros a tonne this year.
According to Reuters, most analysts expect prices to continue to rise to 2030, spurred by the prospect of the carbon market reforms the Commission also proposed on Wednesday as part of a broad package of measures to deliver the EU’s climate change targets.
The Commission further clarified in a factsheet outlining the policy that: “If importers can prove, based on verified information from third country producers, that a carbon price has already been paid during the production of the imported goods, the corresponding amount can be deducted from their final bill.”
A report by the World Bank in May showed that some 64 carbon pricing instruments such as emissions trading schemes or taxes are in use around the world, in places including China and some U.S. states, not least California. But they cover only 21% of global greenhouse gas emissions.
The Commission has said the carbon border measure will comply with World Trade Organization rules, but the idea has received a hostile reception from trading partners including China and Russia. read more
Commenting on the proposed tax, the U.S. Treasury Secretary, Janet Yellen on Tuesday said that while carbon pricing can be an effective tool, it should also be recognized that some countries may use other means to curb emissions.