For many years, as Australia agonised over its climate change transition and carbon price, forward-looking economists warned that it would not be long before it was imposed by other countries anyway. That day has come in the European Parliament:
To raise global climate ambition and prevent ‘carbon leakage’, the EU must place a carbon price on imports from less climate-ambitious countries, say Environment MEPs.
On Friday, the Committee on Environment, Public Health and Food Safety adopted a resolution on a WTO-compatible EU carbon border adjustment mechanism (CBAM) with 58 votes for, 8 against and 10 abstentions.
The resolution underlines that the EU’s increased ambition on climate change must not lead to ‘carbon leakage’ as global climate efforts will not benefit if EU production is just moved to non-EU countries that have less ambitious emissions rules.
MEPs therefore support the introduction of a WTO-compatible CBAM to place a carbon price on imports of certain goods from outside the EU, if these countries are not ambitious enough about climate change. This would create an incentive for EU and non-EU trade industries to decarbonize in line with the Paris Agreement objectives.
MEPs underline that it should be designed with the sole aim of pursuing climate objectives and a global level playing field, and not be misused as a tool to enhance protectionism.
CBAM must be linked to a reformed EU Emissions Trading System (ETS)
The CBAM should be part of a broader EU industrial strategy and cover all imports of products and commodities under the EU ETS. MEPs add that by 2023, and following an impact assessment, it should cover the power sector and energy-intensive industrial sectors like cement, steel, aluminium, oil refinery, paper, glass, chemicals and fertilisers, which continue to receive substantial free allocations, and still represent 94 % of EU industrial emissions.
To prevent carbon leakage, carbon pricing under the CBAM should be linked to the price of EU allowances under the EU ETS, they add.
Plenary is set to vote on the resolution in its session 8-11 March 2021. The Commission is expected to present a proposal in the second quarter of 2021.
German Greens, who have serious clout, are also proposing a new carbon tax alliance with the US, to punish all imports with no carbon pricing. That seems an unlikely outcome given the US no carbon price and only 11 state carbon prices. But who knows?
Eight days ago, China activated its trial rules for the world’s largest and most urgently needed carbon pricing scheme.
Australia led all of this and would now be miles ahead of the game had it sustained its carbon pricing regime. Moreover, the Gillard carbon price taxed only the polluters while compensating households with tax cuts. Instead, now, they will still pay the tax via fewer tradeable jobs.
But, hey, we stopped the boats.