BRUSSELS (Bloomberg) — The European Union is poised to bring trade policy into the fight against climate change, a move that risks stoking global commercial tensions.
European Commission President-elect Ursula von der Leyen wants to craft a carbon border tariff for the EU, the world’s biggest single market, as part of a Green Deal to battle the more frequent heat waves, storms and floods tied to global warming.
The idea would unleash a major policy weapon that may well be too politically controversial to work. Even so, elevating the issue is likely to trigger a broader debate within the EU about how to protect domestic businesses from lower-cost competitors abroad. The bloc is weighing steps to zero out fossil fuel emissions by 2050 and wants to prod the rest of the world into similar actions to avoid heavy industry moving abroad.
Frans Timmermans, the designated EU climate czar who will take office on Nov. 1, said the EU should analyze introducing a carbon border tax. The goal would be to prevent European energy-intensive manufacturers such as steelmakers and oil refiners from relocating to countries outside the EU without emission curbs and spur green ambitions by other countries.
“With the Green Deal, Europe can lead by example,” Timmermans told a European Parliament confirmation hearing in Brussels on Tuesday. “But we should also be prepared to consider other instruments, for instance a carbon border tax, to level the playing field for European products if other countries do not go as far as us.”
Europe aims to lead the fight against global warming, working with China to leave the U.S. politically isolated on the issue. Policy makers across Europe are upset U.S. President Donald Trump turned his back on the landmark 2015 Paris Agreement on climate change. They also want to harness economic benefits from a clean-energy revolution that would touch everything from transportation and agriculture to energy production and the design of cities.
The idea of an EU carbon border touches on two policy areas where the bloc has very different track records. Timmermans’ study of the matter shows the delicacy and difficulty of levying such a tax while complying with World Trade Organization standards designed to smooth the flow of goods and services across borders.
The EU generally speaks with a single voice on trade, and the daily management of European commercial policy is in the hands of the commission, the bloc’s executive arm. By contrast, tax matters generally remain a closely guarded responsibility of EU national governments, so any bloc-wide initiative in this field requires their unanimous approval.
The EU has a history of failed initiatives in the area of taxation, including much-touted 2011 proposals to establish a financial-transactions tax and to introduce an emissions-levy on industries excluded from the bloc’s carbon-dioxide caps.
The notion of a European carbon border tax faces a sizable hurdle posed by the EU’s unanimity rule on fiscal matters. Some of the bloc’s governments are also genuinely concerned about whether such a measure would be compatible with WTO rules, which the EU is keen to support in the face of Trump’s protectionist challenge to the global commercial order.