While the EU carbon tax should be introduced at the bloc’s borders by 2022, a report details the challenges and options of this mechanism, which still has many grey areas.
The carbon border tax is one of the highlights of the European Commission’s Green Deal, and should be presented around June 2021 in view of implementation the following year.
However, there are many uncertainties surrounding the contours of this mechanism, which is supposed to preserve Europe’s competitiveness by preventing “carbon leakage”, where companies relocate to countries with lower pollution costs.
In a report published on 30 September and backed by the French and German governments, the European Roundtable on Climate Change and Sustainable Transition (ERCST) stated that the challenge is “closely linked” to the EU’s increased climate ambitions.
The stakes are high because, in addition to the objectives of the Green Deal, the Commission would like to allocate the revenues from this future tax to the Next Generation EU recovery plan, endowed with €750 billion.
The European Parliament had endorsed this possibility in a plenary vote on 16 September, maintaining its position on “the need to introduce new sources of revenue into the EU budget.”
MEPs had also called for a legally binding timetable for their introduction, insisting that “the financing of the recovery must be sustainable through, for example, the introduction of taxes on transnational polluters.”
Since Jacques Chirac first proposed a carbon border tax, French presidents have never let go of the idea. Now, the European Commission plans to integrate it into its recovery plan, much to the irritation of Beijing, just as an EU-China summit opens on Monday (14 September). EURACTIV France reports.
A very wide range of incomes
According to European Commission estimates, the border carbon tax could bring between €5 and €14 billion in revenues, a very wide range that will become clearer depending on the scope and design of the mechanism.
At the moment, the carbon border tax is currently subject to a public consultation until 28 October. In Brussels, several options are being considered, including a tax on imports at the EU border for products from sectors at risk of carbon leakage and the extension of the EU’s emissions trading scheme (EU ETS) to imports.
The latter option would oblige foreign producers or importers to buy allowances under the scheme, which would have an impact on the market stability reserve.
This measure, effective since January 2019 and designed to reduce auction volume, had pushed up the price of carbon before the lockdowns caused a massive and unforeseen reduction in greenhouse gas emissions once again.
After plunging below €10 between 2016 and 2018, the price carbon reached almost €30 per tonne in July 2019 before falling to €15 in mid-March. It is now trading again above €25 following the Commission’s announcement of new higher climate targets for 2030.
European Commission President Ursula von der Leyen announced plans on Wednesday (16 September) to target a 55% cut in greenhouse gas emissions by 2030 as part of a broader European Green Deal programme aimed at reaching “climate neutrality” by mid-century.