EU launches first phase of world’s first carbon border tariff – Carbon Brief

Yesterday, the European Union launched the “first phase of the world’s first system to impose CO2 emissions tariffs on imported steel, cement and other goods as it tries to stop more polluting foreign products from undermining its green transition”, reports Reuters. The newswire adds: “The planned tariff has caused disquiet among trading partners and, at a forum last month, China’s top climate envoy Xie Zhenhua urged countries not to resort to unilateral measures such as the EU levy. The bloc will not begin collecting any CO2 emission charges at the border until 2026. Sunday, however, marks the start of an initial phase of the Carbon Border Adjustment Mechanism (CBAM) when EU importers will have to report the greenhouse gas emissions embedded during the production of imported volumes of iron and steel, aluminium, cement, electricity, fertilisers and hydrogen. Importers will from 2026 need to purchase certificates to cover these CO2 emissions to put foreign producers on a level footing with EU industries that must buy permits from the EU carbon market when they pollute.”

The Financial Times features the story on its frontpage under the headline: “UK exporters face hefty EU carbon tax bill after Sunak weakens climate policies.” The article begins: “Rishi Sunak’s weakening of UK climate targets has left British exporters facing hundreds of millions of pounds in EU carbon border taxes within the next decade – revenues that otherwise would have flowed to the Treasury. The UK carbon market, which sets the price large manufacturers and energy companies must pay for every tonne of CO2 released, has collapsed after the Conservative government weakened a number of green initiatives. UK emissions prices have fallen to less than half the EU equivalent in recent months, having previously traded near parity. The EU’s forthcoming carbon border tax regime will seek to penalise countries with substantially lower carbon costs than the bloc’s. As a result, the drop in UK emissions prices means that British exporters to the EU will become liable for the EU tax when it comes into force in 2026. The lower emissions price also means that the UK Treasury will generate less revenue from carbon pricing; in effect the changes will divert a portion of companies’ carbon bills from Westminster to Brussels.”

Politico says “the EU’s effort to become climate neutral is kicking into high gear – as of Sunday the bloc’s carbon border tax enters a trial period, which is likely to raise tensions with key trading partners”. It adds: “The impact is likely to be the most severe on the EU’s biggest trading partners – Russia, China, the United Kingdom, Turkey, Ukraine, India, South Korea, and the United States, according to a report by the Carnegie Europe thinktank earlier this year. Brazil, South Africa and India, have all accused the EU measure of being ‘discriminatory’. New Delhi announced last week that it is planning its own carbon tax, taking particular aim at the EU’s exports. China has called on the World Trade Organization to assess the measure.”

The Economist has published a feature about the launch of the CBAM today headlined: “How carbon prices are taking over the world.” It concludes: “There is a domino effect to carbon pricing. Once an industry is subject to a carbon price its businesses will naturally want their competitors to face the same rules. Therefore owners of coal power plants will lobby to ensure that gas power plants operate on a level playing-field. Governments in exporting countries also have an incentive to ensure that their domestic firms pay a carbon price at home rather than a tariff abroad. If Asia’s factories are pressed to reduce their emissions anyway by schemes such as CBAM, then its governments are leaving money on the table by not levying a carbon price of their own. The question is whether the dominoes will fall fast enough.”