EU proposes world’s first carbon border tax for some imports

The European Commission today put forward plans for the world’s first carbon border tax, on imports of carbon-intensive steel, aluminium, cement, fertilisers and electricity, as part of a programme to meet its new climate target.

The border levy should be phased in from 2026, the Commission said, and is designed to protect European industries from competitors abroad whose manufacturers can produce at lower cost because they are not charged for their carbon output.

Under the proposal, a transitional phase from 2023-25 will require importers, including those importing electricity, to monitor and report their emissions.

Importers will be required to buy digital certificates representing the tonnage of carbon dioxide emissions embedded in the goods they import.

The price of the certificates will be based on the average price of permits auctioned each week in the EU carbon market.

EU carbon prices have hit record levels of more than 58 euros a tonne this year.

Most analysts expect prices to continue to rise to 2030, spurred by the prospect of the carbon market reforms the Commission also proposed today as part of a broad package of measures to deliver the EU’s climate change targets.

The border levies can, however, be reduced.

“If importers can prove, based on verified information from third country producers, that a carbon price has already been paid during the production of the imported goods, the corresponding amount can be deducted from their final bill,” the Commission said in a factsheet outlining the policy.

Some 64 carbon pricing instruments such as emissions trading schemes or taxes are in use around the world, in places including China and some US states, not least California. But they cover only 21 per cent of global greenhouse gas emissions, a May report by the World Bank said.

Prices within these schemes also vary greatly.

The Commission has said the carbon border measure will comply with World Trade Organization rules, but the idea has received a hostile reception from trading partners including China and Russia.

US Treasury Secretary Janet Yellen on Tuesday said that, while carbon pricing can be an effective tool, it should also be recognised that some countries may use other means to curb emissions.