The European Commission should scrap the idea of a carbon border tax and favour incentives for energy-intensive companies to create a greener future, a leading research group concluded. The recommendations from Brussels-based Bruegel add to the debate about how the European Union can put into practice a commitment to zeroing out fossil fuel emissions by 2050 without scaring off industry.
Ursula von der Leyen, who takes office as EC president in the next few weeks, favoured a carbon border tax to protect industry from competition overseas where environmental regulations are more lax. Bruegel said that levy probably will be too controversial to win support and that incentives may accomplish the same goal.
“Let’s not waste five years of political capital on things that will difficult to implement,” said Simone Tagliapietra, one of the authors of the Bruegel report, which will be published next week. “For the Green Deal to be put into practice, we need to be pragmatic.”
The current system involving the EU Emissions Trading System has driven up the cost of pollution, forcing heavy industry from steel to cement makers to think twice about expanding in the region. That is encouraging the phenomena known as carbon leakage, where emissions move abroad with jobs and industry.
Von der Leyen’s goal is to bring the EU in line behind a target to eliminate carbon emissions by 2050, a dramatic steepening of ambition over the current pledges. Bruegel said the mechanisms set up to achieve that goal will determine whether industry can continue to flourish.
Carbon border taxes are problematic because they’re likely to aggravate trade tensions. US President Donald Trump already has threatened to hit European automotive goods to retaliate against support for Airbus SE. A carbon border tax would drive up the cost of imports into Europe. Also, it’s difficult to design such a tax while complying with World Trade Organisation standards designed to smooth the flow of goods and services across borders.
Bruegel’s alternative is support “clean companies,” with the EU awarding subsidies to businesses that produce internationally traded goods with lower emissions. The value of these subsidies per ton of reduced pollution might be significantly higher than the current carbon price in the ETS.—Gulf Times