We continue with part IV of our series Carbon border tax explained. See part I, part II, and part III if you have missed them.
Experts believe that designing an Border Carbon Adjustment (BCA) that effectively contributes to reducing global greenhouse gases emissions without jeopardising the multilateral trading system is difficult, but possible. The following expert recommendations should be observed in the design of a carbon border tax for the European Union.
Target high-emitting highly traded sectors
The BCA should target products rather than producers and should be limited to a small handful of energy intensive goods in high-emitting highly traded sectors (listed below). The sectors that are included should have relatively simple supply chains so that trans-shipment (i.e. the shipment to countries which are exempted from the BCA and subsequent relabelling) can be controlled and for which there is evidence of significant carbon leakage. This would make the regime simpler and more manageable as it will cover relatively few sectors while still exploiting most of the potential BCAs benefits in terms of reducing leakage.
Be fully reciprocal
The EU’s Emissions Trading System and BCA should be fully reciprocal and the BCA should be an integral part of a wider ambitious EU policy package to meet the objective of climate neutrality by 2050. That means that the carbon border price needs to be equivalent to the domestic one and that the BCA should only apply to sectors or products that are regulated by an EU carbon tax or cap and trade. The EU should also scrap the currently used free emissions allowances that it grants to energy-intensive industries and there should be no rebates of the carbon costs of EU exporters.
Take the greenhouse gases intensity as basis
The BCA should be based on the greenhouse gases intensity and not on the energy-intensity of a sector and product as process emissions and all non-energy sources of emissions or indirect emissions (e.g. from transport) are otherwise excluded from the calculation. In some sectors (e.g., agriculture, cement, waste management) the latter are at least as significant as energy-related emissions and would otherwise be missed.
Protect the climate not the EU’s economy
The BCA should be designed so that is dispels all doubts that the scheme is primarily about protecting the EUs economy from foreign competition. For example, revenues generated from the BCA should be used for dedicated carbon abatement measures either in the EU or in developing countries to finance mitigation or adaptation projects.
Further reading
- BCA Guidance
- Changing Climete for Carbon Taxes
- Border carbon tariffs giving up on trade to save the climate
Sectors which could be included in the Carbon Border Tax
- Malt manufacturing
- Wet corn milling
- Rendering and meat byproduct processing
- Yarn spinning mills
- Pulp and paper
- Petrochemical manufacturing
- Chemical manufacturing
- Fertilizer manufacturing
- China/glass/ceramics
- Cement and lime manufacturing
- Mineral wool/ground or treated mineral, earth
- Iron and steel mills, iron foundries
- Electrometallurgical ferroalloys
- Iron/steel pipe/tube manufacturing
- Primary aluminum
- Smelting and refning, non-ferrous metals
- Carbon and graphite product manufacturing
- Mining: iron ore, copper ore, nickel ore.