THE EUROPEAN COMMISSION PROPOSAL FOR A “CARBON TAX”

The EU has not adopted a "carbon tax" (document COM 2021/564). There is already the carbon Emission Trading System, designed within the framework of the United Nations Convention on the Environment, and particularly adapted to the commitments settled on the Paris Agreement of November 2015.

The carbon tax project falls within the objectives defined in the so-called "European Green Deal" and reflected in Regulation 2021/119 regarding "climate neutrality", which establishes a level for emissions of greenhouse gases in the year 2030 55% lower than those existing in 1990.

How will this Commission initiative be articulated?

A specific tax has been ruled out - it would probably have increased the problems of compliance with World Trade Organization regulations. The new measure would be linked to clauses of restriction of environmentally harmful products, agreed in the  relevant international forums - in this way it is intended to place it under the procedure of issuing certificates ("emission rights") for the trade of greenhouse gases established by Directive 2003/87. These certificates would permit the access into the EU territory of certain products affected by the regulation (such products to be approved in the future).

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https://cepr.org/voxeu/columns/what-european-carbon-border-tax-might-look

 

According to the justification offered by the Commission, it would thus be a matter of balancing or "adjusting" the European effort, aimed at substantially reducing emissions, with the least involvement of other countries in that purpose. Essentially, the measure would limit the entry of certain products of which the manufacture is more polluting. It would avoid a risk of inefficiency, on a global level, of the work undertaken by the EU to reach the targets set for 2030.

The draft Regulation establishes a "Carbon Border Adjustment Mechanism" (CBAM), which would apply to the importation of products that originate emissions, among which, in addition to electrical energy, certain types of cement would be included, as well as iron, steel and aluminium manufacturing. The latter sectors are particularly "sensitive" in the Union's industry, and there are already some measures of a protectionist nature applied, such as anti-dumping duties, countervailing duties or additional duties. This places the Commission's proposal in a delicate position, as third countries are likely to object on grounds of unfair restraint of trade.

For the purposes of the new regulation, an "authorized declarant" is created. This is a person who, prior to the importation of the affected goods, must request an authorization from their national authorities to carry out this operation.

Once the authorization has been granted, the "authorized declarant" will be included in a Registry that will contain, among other identification data, the specific number of the operator for the purpose of importing the affected products.

To import the goods, the authorized declarant will have to acquire from their national authorities the necessary certificates to cover the CO2 emissions and must present an annual periodic declaration that includes the total quantity of imported product, the CO2 emissions originated (according to a method detailed in the Regulation itself) and the certificates acquired to cover such emissions.

As we can see, the Commission is trying to find a legal basis in international law relating to the environment, and for this very reason the mechanism of adjustment is linked to the existing emissions trading system, so that it can be in accordance with the principles and provisions of the World Trade Organization.

Given the particularly sensitive nature of the products on which it falls (iron, steel and aluminium), the future regulation has immediately aroused suspicion on the part of the main competitors of the EU, such as the United States or the BRICS group (Brazil, Russia, India, China and South Africa), who do not agree with the alleged balancing "neutrality" of the procedure, and who rather see in the application of the "border adjustment mechanism" a measure of equivalent effect to quantitative restrictions expressly prohibited by the WTO, therefore one more obstacle to global trade and a violation of the understandings approved within said supranational body. Although the EU has responded to such accusations with the offer of bilateral commitments that can avoid the application of the measure in certain cases, if it is finally put into practice indiscriminately, we could, perhaps, be facing the start of a new trade war with climate change in the background.