Europe Just Launched the World’s First Carbon Tariff. Will the United States Follow Suit? - Inside Climate News
Excerpt from this story from Inside Climate News:
Companies that want to do business in the European Union will soon have to pay extra if the carbon footprints of their products are too high.
The EU on Sunday officially began phase one of its carbon tariff. The first-of-its-kind tax scheme could help reduce the climate-warming emissions of industries that are notoriously hard to decarbonize, including cement and steel manufacturing.
Under the EU’s new policy, foreign companies must now report all the greenhouse gas emissions associated with certain imported goods: cement, steel, iron, aluminum, fertilizers, hydrogen fuel and electricity. Starting in 2026, any of those imports that don’t meet the bloc’s emissions standards will face an additional fee when crossing the border. Other goods will be considered for the tax in the coming years, the European Commission said.
The tax policy has drawn criticism from countries like China and Russia, which argue it undermines the principles of free trade and worsens geopolitical tensions. Supporters say the program is necessary to put EU companies on an even playing field with nations that have lower environmental standards. They also say it will incentivize industries to more quickly reduce their carbon emissions and encourage other countries to follow suit by adopting their own carbon tariffs.
The EU’s carbon tariff “is not about trade protection,” Paolo Gentiloni, the European economy commissioner, told Reuters. “It is about protecting the EU’s climate ambition and seeking to raise the level of climate ambition worldwide.”
By law, the EU must reduce its emissions 55 percent below 1990 levels by 2030.
The way a carbon tariff works is relatively simple. A company in China, for example, might sell relatively cheap cement, but with a high carbon footprint because the product is made in factories that run on electricity from coal-fired power plants. That puts EU cement makers, which are required to have lower emissions, at a cost disadvantage.
The EU company has had to invest extra money to switch to cleaner energy sources, buy carbon offsets and install more energy efficient equipment—meaning that, for now at least, it must sell its cement at a higher price. A carbon tariff essentially reduces the price differences between the domestic products and the more carbon-intensive foreign imports, incentivizing companies sending goods to the EU to reduce their emissions to avoid the additional fee.