Essay by Eric Worrall
Trade war anyone? The EU is trying to dictate carbon policy to the world once again. But this latest tax the world initiative is overshadowed by the EU’s humiliating 2012 failure to tax US airlines.
More fights ahead for EU carbon border tax
EU negotiators struck a preliminary deal on a carbon border tax, but a final agreement hinges on talks this weekend.
DECEMBER 13, 2022 5:36 PM CET
The EU’s first-of-its-kind carbon border levy designed to shield its industries from rivals in countries with lower CO2 pricing is almost a done deal, following talks that ended at 5 a.m. on Tuesday.
It’s a key part of the EU’s Fit for 55 program that aims to cut CO2 emissions by 55 percent by the end of the decade and the Green Deal that plans for the bloc to be climate neutral by 2050.
But there’s still a few key aspects of the Carbon Border Adjustment Mechanism (CBAM) to iron out in another round of talks this weekend.
The idea is that producers importing carbon-intensive products into the bloc will have to buy permits to account for the difference between their domestic carbon price and the price being paid by EU producers. A ton of carbon on the EU’s Emissions Trading System (ETS) currently costs just over €87; other countries like the U.S. have no national carbon price.
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Will President Biden reject this latest European effort to squeeze money from American companies?
President Obama was responsible for the failure of the 2012 EU global carbon tax initiative. Obama forced the EU to back down on taxing US airlines operating in European airspace. But in my opinion Biden’s presidency has been marked by weakness and poor decision making, so there is a real risk he will roll over for European climate demands.
The European carbon border tax initiative will fail, the only question is how much economic damage will accrue before the scheme is cancelled.
Not only are the planned export border rebates an invitation to fraudsters, even if the EU succeeds in convincing the rest of the world to comply without trade war retaliation, EU businesses will still be at a substantial disadvantage to non-EU businesses. A rebate on the price of the final export product does not compensate for the dead money losses of a supply chain whose costs have been inflated by European carbon taxes.
Anyone who has ever run a business would spot this disadvantage and loss immediately. But I doubt most of the people who run the EU, who had input into designing this tax and rebate scheme, have any idea what dead money is, let alone an appreciation of the impact of inflated supply chain costs on business competitiveness.
Many modern Europeans tend to look down on and sneer at British and US laissez faire capitalist ideas, which is kind of funny, given laissez faire is a French phrase, popularised by free market supporting 18th century French philosophers. Ignorance or disdain for capitalist economics appears to almost be a badge of honour amongst today’s European leaders – which in my opinion goes a long way towards explaining Europe’s current energy crisis, and Europe’s long term economic decline.
