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EU leaders risk trade tension with carbon border tax plan to shield industry

viernes, 04 de octubre de 2019 | Trading

The new European Union executive risks inflaming international tensions over trade and the environment even before it takes office in November by promising a carbon border tax to shelter its industry from the cost of cutting emissions. 

Previous European Commissions have resisted calls, led by steelmakers and traditionally protectionist France, for a carbon levy on imports to protect Europe’s relatively clean and expensive manufacturers from competition from cheaper production elsewhere.

But fresh momentum has come from increased prices in the EU Emissions Trading System (ETS), the European Union’s flagship instrument for making polluters pay, as well as a rising tide of protectionism led by the United States. 

Until now, the Commission has handed out free ETS permits to tackle industry’s complaints it is subject to “carbon leakage,” the term used to refer to the possibility high EU compliance costs will drive manufacturing to lower-cost parts of the world.

But from 2021, companies will receive fewer free permits, boosting their costs just as they face investing in expensive new technology to enable the EU to reach a goal of climate neutrality by 2050, in line with the Paris Agreement on curbing global warming. 

Some lawyers say the Commission must be prepared to be pulled into trade conflicts or European industry will be destroyed.

“Either the EU prepares itself for and accepts the risk of retaliation or it simply allows other countries to continue with a major artificial advantage which will increasingly destroy EU manufacturing,” Laurent Ruessmann, Brussels-based partner at Fieldfisher law firm, said.

History suggests major powers will respond if the Commission’s proposal ever becomes law. 

The United States, China, Russia and other foreign governments, accused the EU of acting beyond its jurisdiction when it tried to include international aviation in the EU ETS.

The attempt to charge all aircraft for their pollution led to threats from China to withhold multi-billion-dollar orders for Airbus aircraft, forcing the EU to suspend the law in 2012.

The United States mission in Brussels, which follows EU policy on behalf of the U.S. government, said it had no comment. No-one from the Chinese government could be reached for comment. 

Russian industry leaders said they were introducing their own measures to curb emissions following Russia’s ratification of the Paris climate accord and in principle any EU tax could be discriminatory.

“The ratification of the Paris Agreement, in my opinion, suggests that we cannot be discriminated against,” Alexandra Panina, head of the Russian Council of Electric Power Producers, said.

Panina is also a member of the management board of InterRAO, which supplies power to EU countries, namely the Baltic states. 

IMPORTANCE OF DESIGN

Much could depend on the design of any border tax, which so far is entirely unclear and in any case would require years of EU policy-drafting and debate to become law.

In policy guidelines, Ursula von der Leyen, the German president-elect of the new Commission, said she would introduce a carbon border tax, starting with selected sectors. 

Acknowledging possible challenges, she said it “should be fully compliant with World Trade Organization rules”. 

Source: Reuters