By Sara Schonhardt
The European Union is close to outlining its plan for the world’s first border tax on carbon emissions, and the effort has elicited a mix of inspiration, curiosity and concern among global leaders.
If it’s done right, the mechanism could have a real impact on the global fight against climate change, said policy experts. But there’s anxiety about how such a maneuver would affect the complex web of international commerce.
“This starts a serious conversation about how do we deal with these issues and what ways can we find,” said Brian Flannery, a visiting fellow at Resources for the Future. “It’s going to be very challenging.”
It may also be necessary.
“The current rules of global trade end up favoring dirtier producers, inefficient processes, in ways that are just not sustainable and not consistent with achieving a climate-stable future,” said Catrina Rorke, vice president for policy at the nonprofit Climate Leadership Council. “We have to confront that challenge if we are going to seriously approach solutions.”
A leaked draft of the European Union’s plans suggests that leaders of the 27-nation bloc are looking to target carbon-intensive imported goods. Those include steel, aluminum, iron, cement, fertilizers and electricity.
David Weisbach, a professor at the University of Chicago Law School who specializes in climate change and taxation, said he thinks the European Union’s border carbon mechanism would affect China and Russia more than the United States because of the low volume of trade in those sectors.
U.S. exports to the European Union of iron and steel were roughly $1 billion in 2019, less than 1% of the global iron and steel trade, according to resourcetrade.earth, a database on the natural resource trade developed by Chatham House. Aluminum accounted for $408 million in 2019 U.S. exports to the European Union, according to the database.
More broadly, the United States in 2019 exported $267.6 billion in goods to the European Union, led by aircraft, mineral fuels and machinery, according to the Office of the U.S. Trade Representative. The draft of the E.U. border adjustment plan suggests the focus is mostly on carbon-intensive primary goods rather than finished ones.
Weisbach said carbon border taxes likely would be a key element of future climate negotiations and that some kind of coordination is necessary if countries want to get it right.
“Ultimately, I think most supporters think of this as a way of creating an incentive for countries to negotiate and for countries that don’t have a carbon tax to want to have one,” he said.