On Dec. 13, the European Parliament and the Council of the European Union reached an agreement to establish a carbon border adjustment mechanism, i.e. to impose carbon tariffs on imported goods according to their greenhouse gas emissions.
According to the European Parliament’s official website, the carbon border adjustment mechanism will start to operate on a trial basis from October 1, 2023, covering industries such as steel, cement, aluminum, fertilizer, electricity, hydrogen, and steel products such as screws and bolts. A transitional period will be set before the carbon border adjustment mechanism comes into effect, during which traders will only be required to report relevant carbon emissions data.
According to the previous scheme, 2023 to 2026 will be a transitional period for the implementation of the EU’s carbon tariff policy, and from 2027 onwards, the EU will fully introduce carbon tariffs. At present, the time for the EU carbon tariff to take effect is still to be determined by final negotiations.
With the operation of the carbon border adjustment mechanism, free carbon quotas under the EU carbon trading system will be phased out, and the EU will also evaluate whether to extend the scope of the carbon tariff to other areas, including organic chemicals and polymers, in the future.
Qin Yan, chief power and carbon analyst of Lufte and researcher of Oxford Institute of Energy, told 21st Century Business Herald that the overall scheme of the mechanism is nearing completion, but we have to wait for the rules of the EU carbon emission trading system to cut free allowances.
The EU Carbon Tariff Reconciliation Mechanism is a key component of the EU’s Fit for 55 emissions reduction package, which hopes to achieve at least a 55 percent reduction in greenhouse gas emissions by 2030, building on 1990 levels. The EU says this plan is essential for the EU to achieve climate neutrality by 2050 and to meet the EU Green Deal.
The carbon border adjustment mechanism set up by the EU this time is also commonly known as carbon tariffs. Carbon tariffs generally refer to countries or regions that strictly implement carbon emission reduction and require the import (export) of high-carbon products is to pay (return) the corresponding taxes or carbon quotas. The emergence of carbon tariffs is mainly due to carbon leakage, i.e., the relevant producers move from areas where carbon emissions are strictly regulated to areas where climate management regulations are relatively lax.
The EU’s proposed carbon tariff policy also intends to avoid carbon leakage in the EU, i.e., to prevent local companies from moving out of the EU to avoid strict carbon control policies, and to create green trade barriers to enhance the competitiveness of their own industries.
In 2019, the EU proposed for the first time to increase carbon tariffs in import and export trade; in December of the same year, the EU formally proposed a carbon border adjustment mechanism. in June 2022, the European Parliament formally voted to adopt the amendment to the carbon border tariff adjustment mechanism bill.
In an interview with China Development and Reform News in August this year, Chai Qimin, director of the Strategic Planning Department of the National Center for Strategic Research and International Cooperation on Climate Change, pointed out that carbon tariffs are a kind of green trade barriers, and the EU’s carbon tariff policy aims to reduce the impact of carbon pricing on the EU and even the European market internally and the weakening of product competitiveness, while maintaining some core industries in Europe through trade barriers, such as the automobile, The EU’s carbon tariff policy aims to reduce the impact of carbon pricing on the EU and the European market, and to reduce the competitiveness of products.
By establishing a carbon tariff, the EU has, for the first time in the world, incorporated the requirements to address climate change into global trade rules. The EU’s approach is attracting the attention of many countries, and according to media reports, Canada, the United Kingdom and the United States are currently considering the issue of carbon tariffs.
The EU said in its press release that the carbon tariff mechanism is fully compliant with World Trade Organization rules, but the practice may give rise to a series of new trade disputes, especially for developing countries with relatively higher levels of carbon dioxide emissions, with greater impact.
Post time: Dec-14-2022