On Tuesday, the European Parliament passed the world’s first “carbon import tax”.
Europe passes world’s first ‘carbon import tax’
On the 18th local time , the Deutsche Presse Agency reported that the European Parliament approved three important EU laws linked to climate change in the “Fit for 55” 2030 climate package that day: the reform of the carbon emissions trading system (ETS), the carbon boundary Adjustment mechanism (CBAM, also known as “carbon tariff”) , the Social Climate Fund Act (SCF) worth up to 86.7 billion euros.
As the name suggests, the EU’s “Fit for 55” project refers to reducing greenhouse gas emissions by 55% compared with 1990 levels by 2030.
On the 19th, the Committee of Permanent Representatives of the European Council will also pass the CBAM legislation. This means that CBAM is about to take effect.
European Commission President Ursula von der Leyen said the approval by the European Parliament brought the EU to “another milestone”. She urged EU member states to give the laws their final approval so they can come into force.
As the world’s first legislation to tax the carbon content of imported goods, the regulation will have a profound impact on global trade .
CBAM to come into force in 2026
Involving multiple products
For Chinese investors who pay attention to foreign trade and export policies, they will naturally be more concerned about the EU Carbon Tariff Adjustment Mechanism (CBAM) approved by the European Parliament on Tuesday.
According to the announcement of the European Parliament, the commodities covered by CBAM include iron, steel, cement, aluminum, fertilizer, electricity, hydrogen and indirect emissions under certain conditions. In addition, screws and bolts and downstream products similar to steel products will also be covered. Inside.
Merchants who import these goods need to pay the difference between the carbon price in the producing country and the price of carbon allowances in the EU ETS.
CBAM will be implemented gradually from 2026 until 2034. It will be advanced at the same rate as the phase-out of free allowances in the EU ETS.
During this period, importers only pay for the emissions that European manufacturers do not get for free. The move, aimed at treating domestic and overseas manufacturers equally, is a key reason why Europe has argued that its border tax does not violate World Trade Organization (WTO) rules limiting discrimination against foreign companies.
The bill also creates a parallel ETS II program for fuels used in road transport and building heating , two industries that will have to pay for the greenhouse gases they produce as soon as 2027.
European lawmakers also voted to include the maritime industry in the carbon emissions trading system for the first time , while adjusting the carbon trading system for the aviation industry , phasing out free carbon emission credits by 2026, and encouraging the industry to use sustainable aviation fuel.
Before the end of the transition period, the EU will also assess whether to expand the scope to other goods that are at risk of carbon leakage, such as chemical products .
With the gradual improvement of EU carbon trading legislation, the price of carbon emission allowances has also risen, from nearly 20 euros/ton in 2020 to the current level of 100 euros/ton. The price per tonne of imported CO2 will be the same as that of the EU ETS, which covers power plants and manufacturers in most industries.
The regulation requires importers to obtain authorization from European governments and list them on the EU Central Register. Businesses face the complex task of determining how much greenhouse gas they emit in the production of imported goods.
Many parties are concerned about cost increases
The implementation of carbon tariffs is very controversial within Europe. For some, CBAM is the start of environmentally friendly trade, but others worry that the EU’s latest move could drive up the prices of thousands of products, according to a report by Germany’s Die Welt on the 19th.
The industry has warned that some products could become more expensive. Cyril Meunier, president of the French aluminum union, said: “Carbon tariffs will increase the price of metal consumption in Europe.” He predicted that if aluminum prices rise, car prices may also rise, causing problems for consumers.
According to foreign media reports, some economists worry that the new measures in Europe may lead to a trade war. Therefore, EU Economic Commissioner Paolo Gentiloni has always stressed that carbon tariffs are “an environmental policy tool, not a tariff”.
According to the Wall Street Journal, CBAM has sparked concerns in the United States, with exporters concerned that the program would mean a cumbersome export process. Officials from countries such as India have also criticized it. S&P Global’s analysis shows that low- and middle-income countries that export steel, such as South Africa, Brazil, and Turkey, face the highest cost increases under the Carbon Border Adjustment Mechanism.
Noah Kaufman, an economist at Columbia University’s Center for Global Energy Policy, said the carbon border adjustment mechanism, essentially a tariff, would initially apply to energy-intensive products , “steel, cement, aluminum and fertilizer”. Europe already has a carbon pricing system in place to deal with emissions associated with manufactured goods, he said.
U.S. calls for similar tax
Governments and lawmakers in other countries are already under pressure to follow suit with “carbon tariffs”. The UK is debating whether to impose a carbon border tax, and Democrats in the US Congress have proposed legislation to impose a carbon border tax. American Iron and Steel Institute President Kevin Dempsey said bipartisan support for the idea is growing in the United States.
U.S. Senator Lindsey Graham of South Carolina suggested he might introduce a carbon tax on imports, the report said.
The gist of the proposal is that it would help the U.S. government encourage consumers to choose greener alternatives when faced with purchasing decisions. If a special tax is imposed on environmentally unfriendly imported goods, it will push up their retail prices, making people less likely to buy them.
Because the special tax applies only to specified imports, it needs to be administered by U.S. customs officials, not the IRS, the analysis said. Functionally, it is no different from a tariff. Depending on how it is structured, it could violate WTO principles.