Building a carbon wall around Europe is instrumental to the success of the European Green Deal, and the EU should move forward without delay, argues Auke Lont.
Auke Lont is President and CEO of Norwegian energy grid operator Statnett. He is also Member of the Energy Transitions Commission, a coalition of leading organisations from the worlds of business, energy and finance.
As the inauguration of the new Commission approaches, Europe will need to make a fundamental decision: can it agree on a truly transformational climate agenda, one that will induce real and tangible reductions in emissions contributing to global warming?
The choice is stark, as no country or continent alone can ultimately achieve the reduction that is required to prevent the looming climate catastrophe. Close international cooperation remains indispensable. Hence, expectations are high for the next UN Climate Change Summit COP26, hosted in the UK at the end of 2020. The summit needs to make a real difference in bringing the world together around decisive and concerted action.
That said, Europe must be prepared to go a step further. If we want to achieve true carbon neutrality, a game-changing intervention is urgently needed. Introducing an effective carbon border tax would constitute such a move, and Europe should champion the creation of such a tax. In fact, it could well be the single most important facet when it comes to meeting our climate ambitions.
Following years of talk about how to create a global carbon pricing scheme, the EU threw down the gauntlet last month when President-elect Ursula von der Leyen unveiled the EU’s ambition for a ‘European Green Deal’. The underlying idea is to accelerate Europe’s energy transition toward a zero-carbon economy in a way which does not disadvantage any particular country, industry, or group of individuals.
This ‘just transition’ is to be achieved by legally mandating carbon neutrality, by 2050, at the European level. Fairness will be guaranteed in two ways. Within the union, by extending the existing Emissions Trading Scheme to cover new sectors, such as maritime. In the wider world, by introducing a European Carbon Border Tax to guarantee a level playing field for European businesses vis-a-vis foreign competitors, who face fewer environmental requirements. Though this second mechanism may be controversial among some, it should determinedly be pursued, for it is crucial to the success of the European Green Deal.
Whilst the 2050 net zero target will boost demand for ‘green products’ in Europe, and the extended ETS will make the transition faster and easier for European businesses, it is the carbon border tax that has the potential to effect the fundamental change envisaged in the European Green Deal. It can guarantee the future of European green manufacturing, protect the European market from polluting rivals, and provide Europe with leverage internationally.
A carbon border tax will position Europe as an attractive ground for producing green products and services that consumers will demand in the years to come. It is a strong signal to existing European industries to decarbonise and transform their processes, but above all an incentive to stay in Europe and not move their production to less-demanding regions.
It will also protect the European market from being flooded by cheap carbon intensive alternatives. Steel or aluminum from China or ammonia from the US will meet a European carbon tax corresponding to its carbon content released during production when entering the EU. Conversely, European steel and aluminum producers will be eligible to receive a negative carbon tax corresponding to their carbon content when exporting their products (like a VAT refund).
Finally, a European carbon border tax will bring exporting nations to the negotiating table on climate issues. This will probably not move the US in the first round, but China will definitely be interested in sitting down with the EU to discuss how international carbon pricing can be more effective. Paying taxes to Europe will seem attractive, compared to the possibility of losing access to an important market. Acting together with the EU on climate change should be the first and best option. Hopefully, after some years, the US will follow – at least certain states could do so.
Such intervention by the EU would be timely, remarkable, and bold. Building a carbon wall around Europe is instrumental to the success of the European Green Deal, and the EU should move forward without delay.