EU moots border tax to offset costs of climate action

A paper drafted for the Commission suggests taxing goods imported from countries that do not impose a CO2 cap on their industry as a way to compensate for the costs of climate- change measures.

Commission advisors are considering slapping a tax on imported goods from countries which do not impose a CO2 cap on their industry, according to a draft paper seen by European Voice (5-11 October).

The paper will be presented to a top group of industrialists, member-state and civil- society experts who help the Commission shape policies in the field of environment and energy – the high-level group on competitiveness, energy and the environment.

The idea, known in academic circles as a “border tax adjustment“, is understood to have emerged from expert discussions on long-term energy scenarios at a September meeting of the competitiveness sub-group.

According to the Voice, cement is cited in the paper as “a good product to trial this approach”.

The ETS has attracted criticism from power-intensive industries including cement, metals and heavy chemicals for driving electricity prices up. Industrialists argue that the scheme is putting EU companies at a disadvantage compared with global competitors, who do not have equivalent constraint.

One of the objectives of the high-level group is to find a solution to the increase in power-prices that come with carbon trading in the EU.

CEMBUREAU President Paul Vanfrachem welcomes the idea, saying that the tax would help offset the competitive disadvantage that the ETS forces on the European cement industry.

"What we are seeing today is [cement] imports increasing a lot, especially imports from China where there is no carbon constraint," says Vanfrachem. 

He believes that "a worldwide effort" on cutting CO2 would be fairer to European businesses. But before such a system is in place, he thinks Europeans "have to take some measures to try to find fair conditions for the competitiveness of the industry". 

"On a temporary basis, and as long as we do not have a worldwide [carbon-trading scheme in place], we are in favour of these kind of taxes," says Vanfrachem.

Although supported by the cement sector, the idea is generally not welcomed by EU businesses. Climate-change expert Daniel Cloquet at UNICE, the European employers' association, expressed the "highest reserves" over the idea, saying that it holds the potential to launch "a commercial war" with the US or China, which do not have cap-and-trade systems.

John Hontelez, secretary-general of the European Environment Bureau, a federation of 143 environmental organisations, says that he supports the idea of a border tax adjustment. "The Commission has picked this up and found it interesting enough to include it in discussions" in the High-level group, he says.

But not everyone at the Commission is supportive. One senior source, who preferred not to be named, said it would not be a good idea "politically".

According to CEMBUREAU, the way forward would be to launch specific emissions- trading schemes at a global level for each industrial sector, instead of following the European model where all industries are treated under the same scheme.

To support this argument, Vanfrachem points to "large discrepancies in terms of the capabilities of different industries to afford" CO2 costs. He cites aviation as a sector which can afford "much higher [CO2 prices] than we could ever afford".

"There is no point having them in the same scheme". 

But here too the idea runs into opposition from the Commission which believes the European system should form "a nucleus" that other countries could join at a later stage. "Let's keep it as one single system," the source said.

The emissions-trading scheme (ETS) places a cap on CO2 emissions from large industrial plants and allows them to exchange their potential surplus on an EU-wide 'carbon' market. Companies exceeding their target can buy excess allowances from greener ones who end up being rewarded for cutting emissions of global warming gases.

Industries currently covered are electricity generation, iron & steel, glass, cement, pottery and bricks.

  • 30 October 2006: Third meeting of the High Level Group (Lisbon national reform plans; renewable energy)
  • End 2006: Commission expected to table a formal legislative proposal to integrate aviation in EU-ETS.

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