French to revive Sarkozy’s EU carbon tariff idea

Arnaud Montebourg, May 2012. [Reuters]

Arnaud Montebourg, the newly-appointed French minister for “industrial revival” who has built a reputation for his fierce attacks against globalisation, has promised to revive old plans by Nicolas Sarkzoy for a carbon tariff at the EU’s borders, an idea previously rejected as protectionist among France’s European partners.

“We must demand reciprocity,” Montebourg told French public television during his first interview as minister, saying he will revive plans for a carbon tariff at the EU’s borders to protect local industry from unfair competition.

“This is an external tax,” he explained when asked whether this would mean imposing tariffs on products imported from China, where industries are not subject to CO2 emission limits.

The plan was “already on the agenda of the European Commission,” Montebourg claimed.

An old and controversial idea

Brussels indeed floated the idea in 2008 when it presented its climate change and energy package of legislation. José Manuel Barroso, Commission president, said China and other exporting countries with lax climate policies could be forced to buy EU pollution permits if they want to trade with Europe.

But the idea gained few supporters. UK officials immediately responded saying they would fight any move to impose a ‘carbon tax’ on imports from non-EU countries.

Only Italy has officially supported the idea while Germany, which had initially backed it, later showed hesitation over fears it could lead to a trade war that would damage its export-dependent economy. Matthias Machnig, a former German environment minister, famously called the French idea “eco imperialism“.

The Commission since retracted its plans, with Trade Commissioner Karel De Gucht taking a firm position against carbon tariffs on the grounds that it could trigger a trade war with China, a concern echoed by the EU’s climate action commissioner, Connie Hedegaard.

The idea, in fact, is hardly new. Former French President Nicolas Sarkozy campaigned for safeguards to prevent industries from relocating abroad due to the EU’s stringent climate rules, calling for a CO2 border tariff in 2009, ahead of the Copenhagen climate summit.

Sweden, which held the rotating EU presidency at the time, rejected the idea, saying it would undermine Europe’s negotiating position in Copenhagen.

Carbon inclusion mechanism

France tried pushing the issue back on the agenda after the failure of the Copenhagen climate summit, arguing that the measure could be used only as a last resort and serve as a lever to force emerging economies like China, India and Brazil back on the negotiating table.

In a rare move, the French Permanent Representation to the EU in Brussels circulated a detailed briefing note explaining how the system would work.

Rebranded the ‘carbon inclusion mechanism’, the scheme would require importers of goods manufactured outside Europe to buy pollution permits from the EU’s emissions trading scheme for carbon dioxide (EU-ETS).

Emerging economies would be offered a partnership covering industrial sectors such as steelmaking, aluminium and cement which suffer the most from foreign competition linked to the EU’s environmental rules. Those that sign up to the agreement would win access to low-carbon technologies and an exemption from the ETS. Those that do not would have to pay for the equivalent EU pollution permits.

To prove the proposal is not intended as a protectionist measure, Paris even said the money could be reserved to fund low-carbon technologies in developing countries.

Change of mindset?

Whether Montebourg will prove more successful than Sarkozy in pushing those ideas at the EU level remains to be seen.

In his TV interview, the newly-appointed minister expressed confidence that mind sets were changing in Europe following the financial and sovereign debt crises.

The European Commission indeed seemly bowed to French pressure, when it tabled plans earlier this year requesting “reciprocity” in trade deals with foreign nations such as China.

“The European Union will have to revise its totally liberal doctrine which is to say that it is forbidden to favour local industry,” Montebourg said.

Arnaud Montebourg's carbon tariff campaign can count on the backing of European steel industry association Eurofer, which supports border adjustment measures "in addition to free allowances" under the EU-ETS "if the latter is not sufficient to restore a global level playing field".

ArcelorMittal, a member of Eurofer, has argued in terms similar to Montebourg when it urged European political leaders to back a “buy European” industrial programme as part of an effort to boost the continent’s economy. “We need measures to encourage more purchases of European goods both to boost demand and to ensure any benefits are felt by European industry rather than leading to more imports,” the chairman and chief executive of ArcelorMittal told the Financial Times in a May 2012 interview.

French diplomats defending the Carbon Inclusion Mechanism, have argued that the EU’s unilateral approach to climate change mitigation has had the perverse effect of rewarding China for refusing any internationally-binding emission cuts by making its own exports comparatively cheaper than European products.

"This is absurd. On the contrary, we should instead be looking to create positive incentives and maintain the fair competition that we need," one diplomat said.

Daniel Gros, director of economic policy at the Centre for European Policy Studies (CEPS), contends that EU tariffs on exports from developing countries could increase global welfare. In a December 2009 paper, he 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.

Border carbon tariffs have been floated as a way of preventing European manufacturing industries from relocating to countries like China where environmental laws are less exacting (>> Read our LinksDossier on 'carbon leakage').

The French have long sought to restore fair competition between EU industries and free-polluting ones abroad.

Former President Nicolas Sarkozy led a campaign among France's European partners to introduce a CO2 tariff at the EU’s border in order to prevent industries from relocating abroad (EURACTIV 14/09/09).

EU official documents

  • European Commission:Carbon leakage

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