According to Reuters, the European Union is considering a draft proposal that would impose tariffs carbon emissions-based tariffs on a variety of imported goods, including steel, cement, and electricity. The news was first reported by Bloomberg last Wednesday. The new tariffs are designed to protect the 27 member nations of the EU from lower cost products made in countries with few or no carbon emission restrictions.
The draft under consideration may be amended before final publication on July 14. The proposed tariffs would be applied in full beginning in 2026, with a potential transitional period starting in 2023. The products subject to the new tariffs include iron, steel, aluminum, cement, fertilizers, and electricity.
Importers would be required to buy digital certificates, with each one representing a ton of carbon dioxide emissions embedded in their imported goods. The price of the certificates will be linked to the cost of permits in the EU carbon market and based on the average price of auctions of EU carbon permits each week.
EU power plants and industrial facilities are already required to buy permits from the EU carbon market to cover their emissions. The price of those permits has soared recently, closing at €51 per ton as of last Thursday. While the European Commission has declined to comment on the proposal, it has made it clear that any such tariffs will be fully compliant with World Trade Organisation rules.
One of the nations likely to be affected the most by the new tariffs is Russia, which still believes it is 1921 and has done next to nothing to curb its national carbon emissions. Nor does it have any active intention of doing so.
By May 31 of each year, importers must report the amount of emissions embedded in the goods they imported into Europe during the previous year and supply the corresponding number of border tariff certificates. If an importer fails to properly report its emissions, or the amount cannot be independently verified, the number of certificates required will be based on default values according to the present draft provisions. Failure to submit a certificate would result in a financial penalty three times the cost of the certificate.
The draft suggests importers may be able to claim a reduction in their carbon border costs if they are based in a country where they already pay a price on carbon emissions. China and California are among the regions already using CO2 pricing systems, although the scope and price level are different from those used by the EU.
The “free market” crowd should be delighted by this but they won’t be. What they consider “free” is a total absence of government rules and regulations. In their close-minded world, it matters not if manufacturing and commerce destroy the Earth’s ability to support human life just as long as Adam Smith’s “unseen hand” is allowed to guide all business decisions. How they think quarterly sales will continue to increase as the population decreases is a great mystery and one they prefer not to address.
As countries take action to address the issue of an overheating planet (at long last), it is essential that border tariffs such as those proposed by the European Commission be enacted to level the playing field and prevent countries like Australia and Russia from exporting their pollution elsewhere. If those countries want to become festering sinkholes, let them. The wonder is not that the EU is considering such tariffs, but that it has taken this long to propose them.