The European Commission has raised the possibility of introducing a carbon border tariff as part of its proposals for the European Green Deal – the strategy for lowering greenhouse gas emissions across the continent to net zero by 2050.
The measure would seek to prevent emissions effectively being exported to other regions through the import of more carbon-intensive products than those manufactured within the EU.
“As long as many international partners do not share the same ambition as the EU, there is a risk of carbon leakage, either because production is transferred from the EU to other countries with lower ambition for emission reduction or because EU products are replaced by more carbon-intensive imports,” the strategy states.
“If this risk materialises, there will be no reduction in global emissions and this will frustrate the efforts of the EU and its industries to meet the global climate objectives of the Paris Agreement.
“Should differences in levels of ambition worldwide persist, as the EU increases its climate ambition, the commission will propose a carbon border adjustment mechanism for selected sectors to reduce the risk of carbon leakage. This would ensure that the price of imports reflect more accurately their carbon content.”
A number of sectors, including energy, are covered by the EU Emissions Trading System (ETS) – a cap-and-trade scheme, which requires obligated parties to obtain and submit enough carbon allowances each year to cover their relevant emissions. They are currently trading at more than €24 per tonne.
Some manufacturers, particularly those in energy intensive industries, have complained that the policy makes them less competitive with rivals outside the EU who pay less for their electricity as a result. There have also been complaints that the UK-only top-up tax, known as the Carbon Price Support, further undermines the competitiveness of British businesses, whilst also displacing domestic generation.
A border tax that ensures imported products are subject to the same carbon costs has been proposed as a solution to their concerns, but the measure is widely seen to be difficult to implement both practically and politically.
The government’s current plans regarding the carbon price are to withdraw from the EU ETS following its departure from the EU but create a linked mirror scheme in the UK. The backup plan in the event of a no-deal Brexit is to introduce a fixed tax on emissions.