EU introduces “carbon tax” across borders

Although commonly referred to as a “carbon border tax”, it is not a tax. The device, agreed by the European Parliament and EU member states on Tuesday, would see twenty-seven of them apply the criteria of the European carbon market to imports. EU entrepreneurs must buy ‘pollution rights’.

It would target polluting sectors such as steel, aluminium, cement, fertiliser, electricity and hydrogen, European companies indicated in two separate press releases issued after lengthy negotiations. The nights ended early in the morning. The idea is to avoid “ecological dumping” as the price of a ton of CO2 rises, which could see manufacturers relocating their production outside Europe, while encouraging the rest of the world to adopt European standards.

Count “indirect” emissions

This “carbon border adjustment” mechanism [ou CBAM en anglais] A key pillar of European climate policies. This is one of the only means of encouraging our trading partners to decarbonise their industry,” said MEP Mohamed Sahim (S&D, Social Democrats), negotiator for the parliament. In practice, the importer must declare emissions directly linked to the production process and, if these exceed European standards, obtain an “emission certificate” at a CO2 price in the EU. If the exporting country has a carbon market, it will only pay the difference.

Read again in August 2021: Support for a new EU carbon tax is not unanimous

According to the agreement, the device will take into account “indirect” emissions, i.e. those generated by electricity used in the production of imported goods. A trial period will begin in October 2023, during which importing companies will simply have to report their obligations. The timetable for effective implementation of the plan, which will be phased in, depends on further talks over the weekend on the rest of the reform of the EU carbon market at the heart of the European Climate Plan.

Removal of free allocations

So, as this “adjustment at the borders” accelerates, the EU will gradually phase out the free emission quotas it has so far allocated to allow European industrialists to face competition from outside Europe. The rate at which these free quotas will be abolished and the possibility of alternative assistance to European exporters without putting them at a disadvantage in the world market are still the subject of intense debate.

read more: A model for a truly efficient carbon tax in Switzerland

MEPs are calling for the phasing out of free quotas from 2027, when the CBAM comes into full force in 2032, before disappearing entirely in 2032. States are advocating a more gradual phase-out between 2026 and 2035. This is an important point: By treating imports and local production equally, Brussels intends to counter accusations of “protectionism” within WTO rules.

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