World’s first carbon border tax lands in Europe
Presented by Chevron
In a global first, the European Union reached a preliminary agreement today to impose a carbon tax on imported goods.
The move is intended to help European industries avoid being undercut by cheaper goods made in countries with weaker greenhouse gas emission rules.
The proposal has already upset supply chains around the world and rankled E.U. trading partners, including U.S. manufacturers that worry the plan will make it more challenging to export goods to Europe. High-emitting developing countries in particular have expressed frustration.
But the deal has also prompted other countries, such as the United Kingdom and Canada, to consider implementing their own border adjustment taxes. Democratic lawmakers in the United States have likewise proposed a similar border tax system.
And European officials say the tariff would be key for shoring up efforts to combat the climate crisis. The E.U. is one of the largest players in international trade, along with China and the U.S.
The deal was reached after all-night negotiations among European national governments and the European Parliament, capping off a year of talks. The plan is slated for adoption in the next few weeks, along with a larger legislative package aimed at slashing planet-warming pollution.
How it works: Companies importing products such as cement, steel, iron, fertilizer and hydrogen would be required to buy certificates to cover all the carbon dioxide emissions associated with those goods, such as their production and transportation.
Notably, the provision includes indirect emissions, or the carbon pollution from the electricity used to manufacture the imported goods. The bulk of emissions from certain goods, such as aluminum, comes from the huge amounts of electricity used in production.
The tax comes amid heightened trade tensions between Europe and the U.S. after the passage of the Inflation Reduction Act, which offers generous tax credits for electric vehicles made in the U.S. and free-trade allies. European leaders have argued that the boon unfairly disadvantages the continent’s manufacturers.
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