European Union policymakers struck a deal on Tuesday to impose a border tax on highly polluting products such as steel and aluminum — an unparalleled move to safeguard Europe’s own climate ambitions while pushing China and others to be greener.
The goal is to impose the same cost of carbon dioxide emissions that European manufacturers pay when they produce inside the E.U.'s borders.
The deal was reached a week after the Biden administration invited the E.U. to jointly create a trade group that would give like-minded countries an advantage in producing cleanly produced steel and aluminum. Members would impose tariffs against metals from other countries that were produced in less environmentally friendly ways.
Combined, the two projects would add up to a starkly different approach from some of the world’s richest nations on how they account for environmentally harmful practices outside of their borders. In particular, it would lead to far more pressure on China to limit its emissions, which are by far the highest in the world, by some measures more than all other developed nations combined.
“We are making sure that what we do at home is not jeopardized by a sort of climate dumping,” said Pascal Canfin, the head of the environment committee of the European Parliament, who was one of the policymakers who negotiated the deal announced Tuesday and has long advocated for such a measure. “That would destroy jobs and industries in Europe.”
The decision would require importers starting in October 2023 to account for the carbon emissions released when the product was made. In 2026, they would have to actually start paying the tariff, which is known in the often-clunky world of trade negotiators as a carbon border adjustment mechanism. The effort will cover steel, iron, cement, fertilizer, aluminum, electricity and hydrogen.
The tool would give Europe the ability to reach far beyond its borders to encourage other countries to invest in environmentally friendly industry.
“We will create an economic interest and rationale for a steelmaker in Turkey or in China to invest in green technologies,” Canfin said. “Because otherwise, anyway, they will pay. We are discussing a real decarbonization of key sectors.”
Before the agreement is finalized, the countries involved will need to discuss how to phase out credits that European industries are currently allotted to make them more competitive against foreign manufacturers. And the European Parliament and the 27 European member states will need to sign off on it. But policymakers involved in the discussions said final approval is all but assured by early next year.
Germany’s climate envoy, Jennifer Morgan, praised the deal, saying she hoped it would spark a wave of new climate ambition around the world.
“That mechanism is really there to also create incentives for other countries to green their supply chains. We are in the middle of a climate crisis, and we all need to be moving together on that,” she said in an interview.
The border tax is so powerful, she said, that she had been seeing Germany’s trade partners sit up and take notice in a way they hadn’t previously done.
“That’s been taken seriously. It’s almost as if Europe is being taken that we mean this climate action seriously,” she said.
U.S. policymakers have in the past worried that previous versions of Europe’s carbon border tax would hit U.S. exports to Europe, partly because Washington and Brussels impose climate regulations very differently.
The two sides have sparred with each other over climate policy in the past. Most recently, Europeans have been frustrated that President Biden’s signature climate legislation, the Inflation Reduction Act, gives tax breaks to electric cars made in the United States, offering them an advantage over European ones. Some European leaders have called it protectionism wrapped up in climate policy. Biden administration officials have encouraged Europeans to support their own industry.
Canfin said any costs on U.S. goods could probably be worked out in a broader negotiation between Europe and the United States on aligning their efforts to combat global warming. Eventually, he said, he hoped it could expand to other parts of the economy.
“We need to avoid frictions among the countries or within the club of countries that are willing to move forward on climate action,” said Canfin, a close ally of French President Emmanuel Macron.
There are risks to the effort. Critics say such tariffs are banned under World Trade Organization rules, something E.U. policymakers rebut but that is likely to result in a formal complaint inside the organization once they go into effect. The tariffs could also spark a wider trade war, especially if the United States and Europe were to unite against China.
But for now, Europe and the United States appear aligned on the idea that tariffs tied to emissions might be an effective tool against Beijing and possibly other big emitters such as India, experts said.
“Brussels and Washington have finally realized that carbon tariffs may be the only way to force China to finally cut emissions,” said Paul Bledsoe, a former Clinton White House climate aide who now works at the Progressive Policy Institute, a think tank. “That’s really the bottom line. Nothing else has worked.”
Bledsoe said that as the United States spends more and more on climate action, its impatience will mount with Beijing and other countries that aren’t moving as quickly. Border taxes may be a rare area of bipartisan agreement on climate policy, especially since they can be used to hit China, he said.
“We’re just spending so much capital on reducing emissions while Chinese emissions are still growing that the political urge to erect some kind of carbon tariff is going to be irresistible, especially ahead of the next presidential election,” Bledsoe said.
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