Europe is trying to stop exporting its emissions | Popgen Tech

The European Union last week reached a deal to tax imports based on their carbon emissions, moving a step closer to setting a new border tariff that has sparked protests from major trading partners including the US, Russia and China .

This comes on the heels of European nations crying foul over the Biden administration’s tax credits for American-produced clean energy as part of the Inflation Reduction Act (IRA). In both cases, the climate crisis has become a means by which countries revive their own industrial policies.

The tax, called the Carbon Boundary Adjustment Mechanism (CBAM), is aimed primarily at addressing a domestic problem. Currently, European companies in polluting sectors such as steel, cement and fertilizers receive a certain number of greenhouse gas allowances under the bloc’s internal emissions trading system. But Europe is phasing out those free credits, forcing manufacturers to cut their emissions.

As Europe clamps down on polluters, there is a risk that it may simply start exporting its emissions. Companies can move production abroad to zones with less stringent climate regulations, while consumer goods made in Europe can become less competitive with cheap and dirty imports.

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Indeed, this appears to be happening already. As European countries cut domestic pollution levels, the emissions embedded in their imports rose, according to a memo by the European Parliament. Imported goods and services now account for more than 20 percent of the EU’s CO₂ emissions.

Given the self-imposed costs of going green, the CBAM expressly seeks to make European manufacturers more competitive with foreign producers. Europe says it is fair. In agreement with World Trade Organization rulesit does not discriminate against any particular country, just levels the playing field.

But it means top trading partners like the US will now face a steep carbon bill when they call at the ports of Rotterdam or Antwerp. The European Parliament’s proposed inclusion of chemicals and plastics as a taxed sector has particularly angered US industry, which sends billions of dollars worth of petrochemicals to the EU each year.

The US tried to discourage the CBAM. John Kerry, climate envoy, warned Europe to press ahead with the border tax, said last year that “the United States has strong feelings about not over-regulating.” Sens. Chris Coons (D-DE) and Kevin Cramer (R-ND) advocated for greater cooperation between the EU and the US on carbon border tax design. In a Wall Street Journal op-ed Cramer argued last week for an “alliance of developed countries on climate and trade policies.”

MANY OFFICIALS IN DEVELOPING COUNTRIES also objected to the CBAM scheme. Countries that are still industrializing tend to have more carbon-intensive production that is more dependent on coal. This creates a global distortion: Rich countries such as the US, Japan and the UK are net carbon importers. China is by far the top carbon exporter, followed by Russia, India and South Africa. Smaller countries such as Mozambique, where aluminum and steel exports are a large part of GDP, could be particularly hard hit by new import tariffs.

Given that trade balance, the CBAM is likely to exacerbate global inequality by giving richer countries a competitive advantage and hindering the growth of export sectors in emerging markets. A study by Boston University’s Global Development Policy Center attempted to quantify the damage. The researchers found that if the CBAM were expanded from the core sectors in the current pilot phase to include all goods and services, as European officials plan, it would increase total exports from Ukraine and India to the EU by as much as 39 percent and 22 can reduce percent, respectively. Even under the current, industry-specific CBAM proposal, the model finds that exports from Ukraine to Europe would fall by more than 10 percent.

The CBAM is likely to exacerbate global inequality by giving richer countries a competitive advantage.

Kevin Gallagher, a professor of global development who leads the center, said he ultimately supports carbon taxes with border tariffs because they create good long-term incentives to raise green standards.

“But it’s also unfunded mandates to the countries that didn’t cause the problem in the first place,” he told the Outlook. “Western countries, their development banks and the IMF have been going out of their way for decades to make sure that developing countries specialize in fossil fuel export sectors, and just cutting the cord is unfair and will promote instability.”

Conversions have been suggested. But the EU has shot down proposals for tax breaks for developing countries, arguing they would breach WTO rules and could encourage the expulsion of foreigners. The climate diplomacy expert Faten Aggad questioned this claim Twitter thread about the CBAM’s consequences for Africa.

Various advocacy groups suggest that the proceeds of the tariff be used to underwrite sustainable development, although this will likely have to be negotiated after the CBAM is approved, as EU law prohibits earmarking of revenue for this type of new instrument.

Not everyone agrees. “I am not a proponent of the ‘let’s use CBAM revenue for climate finance,'” Aggad wrote. “Effect is that we will discourage industrial development and have a huge impact on economies in exchange for ODA [official development assistance]. It is a matter of structural transformation versus ODA approach.”

THE BORDER TARIFF RULES COM while Europe scrambles to revive its own industrial policy. The CBAM has been in the works since 2019, as part of Europe’s broader package of policies for a continent-wide “Green Deal.”

But in recent months, European officials have noted the United States’ efforts to make its clean energy businesses more competitive with subsidies through President Biden’s IRA climate and jobs legislation.

“There is a risk that the IRA could lead to unfair competition, close markets and fragment the same critical supply chains that have already been tested by COVID-19,” European Commission President Ursula von der Leyen said. address earlier this month criticized the IRA’s Buy American provisions and “production subsidies that could lead to a subsidy race.”

Von der Leyen has called for Europe’s restrictive state aid rules to be relaxed, in a shift away from neoliberal orthodoxy that signals more green spending but could also spark a transatlantic trade war. Without greater coordination, US and Europe’s warring economic nationalism is likely to disadvantage developing world exporters.

“Europe is already seeking bilateral agreements with the US to mitigate the impact the IRA will have on European manufacturers,” said Pierre Leturcq, a policy expert at the French think tank Institut Jacques Delors. Outlook. “Yes, we shouldn’t be trade purists, but at the same time provoking a subsidy race can only benefit the richest countries in the world. The US would be the natural winner of such a race. China too. The EU is right behind. But then, how will developing countries and the poorest regions compete?”