The EU wants to be climate neutral by 2050, but what about the rest of the world? The European Union has set itself ambitious climate targets, but what if other countries (despite bold promises) fail to cut emissions to the same extent?
The risk is that the EU’s efforts have little positive impact on global emissions, while the European economy suffers from stricter environmental regulations putting EU firms at a competitive disadvantage. Some analysts argue this dynamic is already at play in the EU Emissions Trading System, with European firms having to restrict their emissions or pay a financial penalty while their international competitors aren’t subject to the same constraints. Consumers in Europe may turn to cheaper goods from abroad and, to get around this, European companies may even move production abroad, increasing overall emissions in the process.
Could a Carbon Border Adjustment Mechanism (CBAM) help? Such a border adjustment system would impose a tax on the import of certain raw materials from “less climate-friendly countries” into the EU. The EU hopes that this system will also encourage its international partners to become more involved in climate protection. The proposal has received plenty of support in the European Parliament, but internationally the EU has been accused of protectionism and violating WHO rules. Could a CO2 border tax really lead to stronger global climate protection and better market conditions for European companies?
What do our readers think? We had a comment sent in from Paul (Παυλος) arguing that the EU should force “other big polluters like China” to become more sustainable by making it more expensive to import products with low environmental standards. Would a carbon border tax help to change other countries’ behaviour?
To get a response to Paul’s comment, we put it to Georg Zachmann, Senior Fellow at the Brussels-based think tank Bruegel, where he focuses on energy and climate issues. What would he say to Paul?
Yes, thank you, that’s a great question, because that’s what this thing is ultimately about. Do we manage to change the way other countries produce the goods and services? And the idea is that a CO2 border adjustment mechanism, as is being discussed in Europe, is essentially there to protect our domestic industry from highly polluting imports. But this also gives the other countries an interest to start reducing emissions, to introduce emission pricing systems, to introduce domestic regulations to meet European standards.
But the challenge is that we are talking about countries like China. And will it be possible for the EU, which is a major economic player but not really a geopolitical player, to set standards that are followed in major partner countries that have a lot of political weight? I am somewhat sceptical that countries like the US or China would accept the EU pushing them around in terms of the national legislation they implement. The EU tried that in the past in the aviation sector and it failed dramatically. And there is a higher risk that if the EU tries this now, it could fail again, simply because the 27 Member States of the EU find it difficult to compromise, and also because at the end of the day we need these partners for many other things as well. So, it’s a risky venture to just go out there and push them to do something with some kind of sanction mechanism.
For further perspective, we also put Paul’s comment to Chiara Putaturo, Inequality and Tax Policy Advisor at Oxfam’s EU Office. What does she think?
Thank you very much for the question, so I have to say that it is difficult to give an answer. Because the CO2 border tax has to be tested on a bunch of sectors first to see if it is really effective. And it could indeed have some negative consequences, maybe not so much for China, but in terms of developing countries if their situation is not taken into account. I can explain it briefly: If a carbon border tax is introduced, products imported from developing countries may become less competitive than they are at the moment in the EU market. And this could lead to lower exports to the EU, with potentially negative effects on domestic revenue mobilisation and jobs in developing countries. And this could even undermine these countries’ investments for just change. So, in this sense, the carbon cap and trade tax leads to a disproportionate shift of the burden to the poorest countries, and this also reduces their capacity to address climate change.
We must also remember that we are in a situation where the poorest and most marginalised people are already the most affected by the climate crisis and also the least responsible for carbon emissions. I would like to cite an Oxfam figure: We have estimated that the EU is collectively responsible for 15% of global cumulative consumption emissions between 1990 and 2015, while the poorest 50% of the world’s population who are not OECD countries account for only 7% of total emissions. So we need to take this into account and avoid this tax further increasing the burden on the poorest in developing countries and undermining global environmental efforts.
Our user Greg sees it differently. He says: “A lot of the greenhouse gas emissions come from goods we consume that are made in China. If production is moved back to Europe and consumers have to pay a lot more, Europe’s greenhouse gas emissions will increase.” Is he right?
For a response to Greg’s comment, we forwarded it to Doreen Fedrigo, Industrial Transformation Policy Coordinator at Climate Action Network (CAN) Europe. How would she respond to Greg?
Greg, let’s be clear: we are already paying now. Greenhouse gas emissions do not stop at national borders, so we are paying through stronger and more frequent storms, fires, floods and droughts and other disruptive weather patterns. You are right, though, that we have outsourced much of our pollution and general environmental damage through globalisation because it costs less to produce and environmental laws are weaker in other countries. Of course, any increase in costs will be passed on to the end consumer, i.e. you and me, but we are not talking about significant price increases here.
In any case, we should not fall into the trap of assuming that cleaner, better performing products automatically cost more. This is a myth that some in the industry like to propagate, but eco-design experts argue against it from practical experience. That is why we are calling for more ambitious sustainable product policies. We need to make it easier for people to behave sustainably, not choose between cheap products that break quickly or much more expensive, better quality products. Europe is still a world region that transforms basic raw materials into high-quality products. We are a leader in the solar panel market, and we are on track to do the same for electric vehicle batteries. Our greenhouse gas emissions don’t have to go up if we decide to create the tools to reduce them further. We need high carbon prices, clean production and other sustainable production and consumption tools alongside behavioural changes.
How does Chiara Putaturo from Oxfam see it?
Yes, it’s a good question because it allows me to also talk about the problems of inequality within the EU. There is a danger that consumers will pay more. And that can happen not only if companies move back to Europe, but also if they keep their location in these countries like China, but the cost of the final products goes up. So we have to carefully consider the impact on citizens and on the poorest citizens in the EU, who again are the least responsible for carbon emissions. And here I cite another figure from Oxfam from 1990 to 2015: the richest 10% of EU citizens were responsible for more than a quarter (27%) of EU emissions, as much as the poorest half of the population combined.
So there is a difference in terms of responsibility for carbon emissions between the richest and the poorest in Europe. Against this background, it is important that we first carry out an impact assessment that focuses on consumers, especially the poorest segment of the population in Europe. We should avoid this tax being regressive, so that it burdens the poorest segment of the population the most. If this is not possible, it is important that we consider compensatory measures.
And Georg Zachmann from Bruegel?
I think Greg raises another important issue, which is what is the alternative to goods being produced in China with higher emissions intensity. And our argument in a paper that we recently published called “Carbon border adjustment – much pain little gain” is essentially that there is another way forward, which is to support domestic green manufacturing in the European Union. The idea is, just as we did before with renewable electricity, that we support the production of green steel, green hydrogen and green cement in the European Union. In this way we have domestic production within the European Union and at the same time we develop the technology. This technology can later be taken up by other parts of the world, leading to decarbonisation not only of the European Union but also of our partners.
And this is ultimately a much smarter way of tackling decarbonisation than trying to erect a tax frontier at the border and thus create incentives for dirtier production within the European Union. Because there is then less pressure on domestic producers to reduce emissions if their competitors, who can operate with high emissions, are locked out of the European market. So our proposal is to support green steel, green cement within the European Union, possibly with the money that we have taken in from our higher emissions prices that we have passed on to our steel producers in Europe, and therefore have the triple win that I described earlier.
Finally, what should be done with the money raised by an EU carbon tax? We had a comment from Daniel arguing that the money from the carbon tax should not just go into the general budget of the EU or governments. Instead, it should be earmarked specifically to help Member States switch to renewable energy. Is he right?
We put this question to Doreen Fedrigo from the Climate Action Network. How would she respond to Daniel?
Daniel, according to the European Commission, the money that will come from a CO2 border adjustment scheme is meant as own resources. This means that it would go into the European fund pool to pay back the money that was borrowed to get us out of the economic disaster of the Kovid. 672 billion borrowed from young professionals, youth and future generations as we will pay off this colossal sum over decades. According to the rules of the World Trade Organisation, this money must go back into the environmental measures for which it is supposed to be raised, i.e. climate protection. We will see if the carbon cap and trade system is introduced, but the money should be used to improve the lives of Europeans, to give them cleaner air and water, to prevent irreversible climate change, to adapt to the climate change we are already suffering, to bring us to carbon neutrality and, above all, to ensure that we rebuild societies that are cleaner, healthier, fairer and based on solidarity and inclusion – including making industry pay for its environmental and social damage.
Should there be an EU carbon border tax? Will a Carbon Border Adjustment Mechanism (CBAM) encourage other countries to reduce their emissions? What impact does the carbon cap and trade system have on developing countries? Let us know your thoughts and comments in the form below and we’ll take them to policymakers and experts for their reactions!