Timothy Hamilton, GreenBiz
May 5, 2021
The European Union is considering a border adjustment carbon tax for a climate solution.
The European Union is considering a border adjustment carbon tax for a climate solution. The carbon border tax is one of the European climate strategies as a measure to impose tariffs on products imported into the EU produced in countries with more carbon emissions than their own.
Carbon leakage is a phenomenon in which a company moves to a country with weak carbon regulation, avoiding the national carbon regulation, as a company's production cost rises due to the national carbon regulation. A carbon border tax is intended to prevent this leakage by imposing the same cost on imports that don’t face carbon taxes at home.
There is very little evidence to estimate the border carbon adjustments because they are so new, but this article examined the potential for carbon leakage without the carbon border tax. According to the article, multiple studies indicated that border carbon tax is likely important only for industries such as steel, textiles, mining, cement and chemicals that are carbon-intensive, large contributors to the economy and exposed to international trade. However, there are other opinions.
Countries with a high dependence on fossil fuels are mainly countries that lack infrastructure to supply renewable energy. There are concerns about whether it is a legitimate option for so-called developed countries to impose tariffs on countries that lack the technology and legal capacity to reduce carbon emissions.
Therefore, rather than unilaterally imposing tariffs, some argue that countries with weak carbon emission regulations need financial and technical support to reduce carbon emissions. In addition, there are still tasks to be solved, such as establishing fair standards for the carbon border tax.
Appropriate response to climate change requires considerable effort and international cooperation. It can be an important key to reduce the carbon emissions, but it cannot solve the problem alone.