Session Summary: EU Climate Diplomacy Leadership and the Carbon Border Tax

Pascal Canfin, Chair, Committee on Environment, Public Health and Food Safety, European Parliament

Christian Egenhofer, Senior Research Associate, School of Transnational Governance, European University Institute, Florence & Associate Senior Research Fellow, Centre for European Policy Studies  

Jennifer A Hillman, Senior Fellow for Trade and Intl’ Political Economy, Council on Foreign Relations, Washington, D.C.

Led by: Steve Clemons, Editor-at-Large, the Hill, Washington, D.C.

 

The discussion kicked off by Pascal Canfin, the Chair of the Committee on Environment, Public Health and Food Safety of the European Parliament, clarifying two key elements of the adjustable carbon border tax. Firstly, it will not be a tax but rather a mirror of the European Trading Scheme in that the price of carbon per tonne will be the same within the EU and at the border. Secondly, if there are European industries that do not pay for their carbon, this will apply to imports as well. A crucial aspect of the EU proposal is that it will be WTO compatible as the EU does not want to start a trade war with its partners on fighting climate change. However, it is not possible for the EU to launch carbon pricing internally and at the same time have importing companies pay nothing which would create a huge incentive for not going green and would be counterproductive to the EU’s goal. There is a wide consensus within the EU on the nature and scope of the proposal.  

There is a high risk that these plans will create tension with the United States and other countries. American producers could complain that they are being double-taxed as they might already go through internal regulations and emissions controls and have paid carbon price in the US already. Although the US has taken various different approaches to decarbonization, it has not done enough to figure out how to help workers transition to greener industries.  

The panel debated the free allocations at length – why the proposal includes them when it might be more simple to get rid of it. There was an agreement that from a long-term perspective, it would be counter-productive to keep the free allocation systems. The focus should be on investing in low-carbon cement and steel and new green industries and make sure that free allocations do not discourage the innovation of green technologies. 

The EU is planning to issue over 50 green laws. The number one reason is to do this for climate but the second reason is to do it not only because it is our duty but also in our best interest to do so. Pascal Canfin identified two industrial challenges ahead of us - digitization and decarbonization, admitting that the EU is in the race on digitization but the main leaders are the US and China but decarbonization is being led by the EU. The EU has the largest amount of green patents and very small fossil fuel extraction missions.