EU Reaches Deal On Carbon Tax For Imports

The European Union reached on Tuesday a provisional agreement to impose a carbon tax on the imports of polluting non-EU products such as iron and steel, cement, aluminum, fertilizers, and electricity, in a first trade regulation accounting for carbon emission intensity.

The provisional deal, which the European Parliament and the EU member states reached after more than a year of negotiations, is aimed at protecting EU industries that reduce emissions from competing products manufactured or derived from non-EU countries with less ambitious climate goals and legislation.

The new rules are in full compliance with the rules of the World Trade Organization (WTO), the European Parliament said in a statement on Tuesday.

The legislation, which has yet to be formally approved and adopted by the European Parliament and European Council before becoming EU law, consists of a so-called EU Carbon Border Adjustment Mechanism designed to combat climate change and prevent carbon leakage.

The mechanism will be set up to equalize the price of carbon paid for EU products operating under the EU Emissions Trading System (ETS) and the one for imported goods. This will be achieved by obliging companies that import into the EU to purchase so-called CBAM certificates to pay the difference between the carbon price paid in the country of production and the price of carbon allowances in the EU ETS.

The mechanism is expected to apply from 1 October 2023 but with a transition period where the obligations of the importer shall be limited to reporting.

The carbon tax will cover iron and steel, cement, aluminum, fertilizers, and electricity, and extended to hydrogen, indirect emissions under certain conditions, certain precursors, as well as some downstream products such as screws and bolts and similar articles of iron or steel.

While the EU says that the law will incentivize non-EU countries to increase their climate ambition, the EU’s key trading partners, including the United States and emerging economies in Asia, have expressed concern that the new rules would further complicate trade and raise export costs for U.S. and other manufacturers.  

By Tsvetana Paraskova for Oilprice.com

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