Civic groups want international carbon tax on overseas polluters

A number of EU companies have invested heavily in oil and gas extraction overseas [Nightman1965/Shutterstock]

EXCLUSIVE: EU companies investing in oil and gas extraction overseas can reap hefty profits but also threaten global carbon targets. In reaction, a number of civic groups have jointly proposed a carbon tax on products and income derived from overseas extraction.

According to a blueprint for future trade deals seen ahead of publication by “Meeting the Paris targets will be impossible without trade policies that will encourage less polluting trade.” The proposal is co-authored by Transport & Environment and the Trade Justice Movement, a UK coalition of nearly 70 civil society organisations.

“EU governments should level the playing field between companies in countries taking action on climate change and those in countries that are not, by levying special import fees,” a T&E press release said.

“A carbon border tax adjustment (CBTA) would be based on the price of carbon – in existing carbon markets such as the EU emissions trading system – and should be levied on goods and services from countries which do not put an equivalent price on carbon,” it said.

Emissions trading deal fails to impress

EU negotiators from member states and the institutions reached a compromise on an Emissions Trading System (ETS) reform early on Thursday (9 November). But green groups have criticised the deal for ditching flagship climate policy status for a fossil fuel subsidy.

The study reported that in 2014, companies in the Netherlands, UK, France and Norway had investments worth half a trillion euros in the extraction of oil and gas outside the EU. That was 20% of those countries’ FDI and 10% of the EU’s total FDI. Investors in US, Canada and South Korea also had large investments in oil and gas extraction overseas.

There are also large overseas investment in manufacturing of coal fuel and refined petroleum products, although they have been decreasing since 2014 due to lower oil prices.

Oil exploration continues unabated in Europe, despite Paris goals

As world leaders prepare to meet for UN climate talks in Bonn, it may come as a surprise that firms are lining up to drill, at great expense, in Europe’s northern waters where output has peaked years ago.

Paul Keenlyside, who authored the report on behalf of the Trade Justice Movement and T&E, said:

“Every year, huge outward investments flow from developed countries to oil, coal and gas production overseas. Yet almost every developed country has pledged to support low-carbon development internationally. A tax on FDI incomes from fossil fuels would acknowledge this contradiction and provide climate mitigation finance to developing countries who need it to grow in a less carbon-intensive way.”

The blueprint, therefore, proposes several measures to address the issue and level the playing field in international trade, while internalising the cost of climate damage into the prices of goods and services.

Here are the proposed measures:

  • A carbon tax on foreign direct investment (FDI) income derived from fossil fuel extraction;
  •  A Carbon Border Tax Adjustment (CBTA): an import fee levied on carbon-taxing countries on countries which do not tax carbon;
  • Revenues generated by both of these measures would go to existing climate funds that support adaption and mitigation measures in low-income countries;
  • All of the above would be set down in new or amended trade agreements between the EU and other willing countries;
  • Multilateral environmental agreements already exist – but it’s time to give them the same legal weight and enforcement measures as trade deals. Right now trade and investment agreements enjoy de facto supremacy over multilateral environment agreements because they create specific rights and obligations for states and private actors.

Companies could be obliged to record and disclose their outward FDI positions, flows and incomes in coal, oil and gas extraction and report CO2 equivalent emissions associated with FDI income

Environment impact assessment of trade deals would also be mandatory, the scope would include the domestic and international impact of a free trade agreement, and it should be conducted by environmental protection departments and not trade officials.

Finally, FTAs should be amended if the assessment detects serious impact on a goal or objective of an environmental agreement.

Calls grow for ‘green clause’ in EU trade deals

There is widespread consensus on the need to level the playing field for European companies confronted with environmental and social dumping from foreign competitors. Just how hard the EU should hit on wrongdoers remains a major sticking point, however.

The report also pointed out that international trade agreements pack more of a punch and carry more political weight than multilateral environmental agreements (MEA). The proposals outlined above are therefore intended to address the imbalance.

Environmental agreements are often stymied by a lack of commitment and the long negotiation period needed to broker an effective deal. Trade deals offer a more mutually beneficial incentive to implement targets.

One recent example is the Minamata Convention on mercury poisoning, which only recently came into force and which has already been found wonting by a lack of cross-border data. Other multilateral agreements like the Aarhus and Espoo conventions are also limited in the same way.

Mercury trade on the up despite new UN treaty

Mercury mining has skyrocketed in the last five years, according to a new UN report, despite efforts to reduce supply.


Life Terra

Funded by the LIFE Programme of the EU

The content of this publication represents the views of the author only and is his/her sole responsibility. The Agency does not accept any responsibility for use that may be made of the information it contains.

Subscribe to our newsletters