Carbon tariffs resurface in Copenhagen aftermath

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The idea of a carbon tax at the EU’s borders is gaining momentum after the Copenhagen climate talks, with French President Nicolas Sarkozy leading calls for a tariff on imports from China and other nations with less stringent environmental protection rules.

The European Commission is due to present its analysis of the outcome of the negotiations at an informal environment ministers’ meeting on 15-17 January to assist the bloc in formulating its strategy for moving forward.

But the timing is difficult as the commissioners-designate will not attend their hearings at the Parliament until next week.

“We’re a little bit stuck,” one national diplomat told EURACTIV, suggesting that the EU executive’s report would not come out before the Environment Council.

A Commission spokesperson said the publication of the report was indeed imminent, but could not confirm that it would make it on time for the environment ministers’ meeting. 

Border tax back in the mix?

Experts expect carbon border tariffs to make a comeback in the post-Copenhagen debate as carbon-intensive industries seek to protect domestic production from international competitors.

“I think there is a very real risk following Copenhagen that governments, particularly within the EU, will argue more strongly for border tax adjustments,” said Simon Tilford, chief economist at the Centre for European Reform (CER), a think-tank. He cited the bleak economic outlook, the “extreme strength” of the euro and the disappointing contribution by a number of other major governments as the grounds for such calls.

A pet project of French President Nicolas Sarkozy, border adjustment measures, has gained little support from other EU leaders except Germany’s Angela Merkel.

Sarkozy restated his intention to see carbon tariffs introduced at EU borders at a speech to businessmen on 6 December.  

“We will not accept goods that fail to conform to our environmental standards,” the French leader was quoted in the French media as saying. “In future we will levy a climate tax at Europe’s borders.”

The European Commission takes the view that it is too early in the negotiations to start talking about border adjustment measures, which could jeopardise any agreement. It maintains that the priority will be to reach a legally-binding global agreement in Mexico City at the end of 2010.

CER’s Tilford argued that although understandable, border tariffs would create more problems that they would solve. 

“I think it would inevitably lead to retaliation and have a negative impact on overall trade volume,” he said, warning that such measures would be “fiendishly difficult” to construct.

The economist urged the EU to look for alternative ways to compensate the most effective industrial sectors for the potential impact that Europe’s more advanced environmental protection measures may have on their competitiveness.

Under the EU’s emissions trading scheme (EU ETS; see EURACTIV LinksDossier), 164 industrial sectors qualify for free emission allowances to avoid relocation to third countries with less stringent climate protection frameworks.

Tilford argued that much more research is required into how great the risk of “carbon leakage” is, but admitted that existing safeguards may eventually need to be beefed up. 

“Given that […] there will be pressure from lots of European governments in light of Copenhagen for more drastic, draconian steps like border tax adjustments, I think the Commission will have little option but to revisit the leakage angle in order to provide some reassurance to those governments that will push for much tougher steps,” he said.

Nevertheless, not all political thinkers view carbon border taxes as harmful protectionism. Daniel Gros, director of economic policy at the Centre for European Policy Studies (CEPS), argued that EU tariffs on exports from developing countries could in fact increase global welfare.

In a December 2009 paper, he pointed out that assessment of carbon tariffs has so far concentrated on competitiveness, overlooking global welfare. It argued that a small carbon import tariff in the EU would lead to lower foreign production, accruing far greater environmental benefits than losses from reallocating consumption from domestic consumers to those abroad. 

Political hurdles to the introduction of carbon tariffs could be overcome by having the EU use the proceeds from the tax to help poorer exporting countries to decarbonise their economies, Gros said.

Debate over mid-term carbon reduction goal

An imminent issue expected to spark debate in the coming weeks is the EU’s mid-term emission reduction target as all negotiating parties to the UN Framework Convention on Climate Change (UNFCCC) are to present their pledges to the UN by 31 January.

The EU has said it will increase its 20% reduction target by 2020 to 30% if other developed countries were to make similar commitments. But after the Copenhagen talks had closed, German Chancellor Angela Merkel among others judged that not enough progress had been made for the EU to revise its carbon reduction commitments.

Nevertheless, more ambitious member states, including the UK and Scandinavian countries, maintained that Europe should go for the highest level of ambition. Governmental sources said there might be an attempt to put a range on the table for the submissions to the UN at the end of the month, making it conditional on other countries’ efforts. 

This would leave open the option of going to 30%, despite reservations from most new member states in Central Europe as well as France, Germany and Italy (EURACTIV 14/10/09).

Many ardent climate protectionists now fear that EU business will take the opportunity to lobby for less stringent environmental measures, causing ambitions to wane after the disappointing Copenhagen Accord.

“We cannot get stuck,” said Jo Leinen, chair of the European Parliament’s environment committee. He stressed that the EU must maintain its ambition and not submit to pressure from industry and other interested parties.

From 7-18 December, governments from 192 countries meeting in Copenhagen tried to thrash out a sweeping agreement to succeed the Kyoto Protocol, amid growing signals from scientists that global warming is occurring more quickly than expected.

The end result was a political accord agreed between a small group of countries, which were divided when commenting on the outcome of the negotiations. It failed to meet the EU's expectations in that it was neither legally binding nor did it introduce emission reduction goals for individual nations.

All eyes are now on Mexico City, where it is hoped that a climate conference at the end of 2010 will produce a legally-binding agreement.

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