EU strikes deal to tax carbon on imports


EU strikes deal to tax carbon on imports


The European Union took a step forward to imposing a carbon tax on imports of energy-intensive goods such as steel and cement after striking a deal with EU members on Tuesday.

Negotiators from EU countries and the European Parliament reached a deal at around 5am in Brussels, on the carbon dioxide emissions tariff on imports of iron and steel, cement, fertilisers, aluminum, and electricity.

Companies importing those goods into the EU will be required to buy certificates to cover their embedded CO2 emissions. The scheme is intended to apply the same CO2 cost to overseas firms and domestic EU industries – the latter of which are already required to buy permits from the EU carbon market when they pollute.

Mohammed Chahim, European Parliament’s lead negotiator on the law, said the border tariff would be crucial to EU efforts to fight climate change.

“It is one of the only mechanisms we have to incentivise our trading partners to decarbonise their manufacturing industry,” Chahim said.

The stated aim of the levy is to prevent European industry from being undercut by cheaper goods made in countries with less stringent environmental rules.

Hydrogen imports, which was not in the original EU proposal, will also fall within the scope of the carbon border tax as EU lawmakers pushed for in the negotiations.

Decisions still have to be taken on when the carbon border tax system will be fully implemented, and which industries and goods it will cover.

It will apply from 1 October 2023 but with a transition period where companies affected by the measures have to report on data about the goods they export to the EU without being taxed on carbon emissions.

Currently, the EU gives domestic industry free CO2 permits to shield them from foreign competition, but plans to phase out those free permits when the carbon border tariff system is operational, to comply with World Trade Organisation rules. How quickly that phase-in happens will be decided in the carbon market talks.

There are criticism coming from emerging economies. Last April, China, India, Brazil and South Africa jointly “expressed grave concern” about the “trade barriers.”

They said it was “discriminatory and against the principles of equity and [common but differentiated responsibilities and respective capabilities]” – a UN term meaning that developed countries, which are historically responsible for causing the climate change, should do more to address it than developing ones.

Brussels has said countries could be exempted if they have similar climate change policies like the EU, and suggested the United States could dodge the levy on this basis.

The proposals will affect the EU’s neighbours in Eastern Europe and North Africa the most. Ukraine and Turkey are moving toward carbon pricing mechanisms to avoid being taxed.

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