LONDON (Reuters Breakingviews) – Ursula von der Leyen’s big tax idea may sound like a non-starter. The incoming European Commission president wants to levy the same tax on CO2 emissions from imports as on products made in the single market. That is likely to go down like a roomful of methane with big trading partners such as the United States and China.
Opponents of a so-called Border Carbon Adjustments have several lines of attack. Practically, attributing specific emissions to each imported good is a recipe for a bureaucratic muddle. Legally, World Trade Organization rules frown on discriminatory tariffs. Politically, BCAs might only worsen the past year’s tit-for-tat tariff fight between Europe and the United States. Simone Tagliapietra, a researcher for think tank Bruegel, argues a more pressing priority is for European Union subsidies to encourage European exporters to become cleaner.
Finally, there is a discouraging precedent. Earlier this decade, global political resistance forced the EU to abandon extending its emissions trading scheme to international air travel.
Yet for each negative, there’s a pushback. Practically, the EU’s 17% share of world trade in goods and services in 2018 gives it clout. For example, the EU’s so-called REACH standards on potentially hazardous chemicals have become a de facto near-global standard.
To keep things simple, the BCA could be restricted to carbon-intensive sectors like cement and steel production, which the International Energy Agency reckons constitute half of the eight gigatonnes of industrial CO2 emissions. Governments already have a good idea how much carbon these sectors emit, providing a base for determining a just levy.
Legally, while WTO rules prevent differential treatment against imports, there’s nothing banning varying taxation on individual sectors. Besides, environmental grounds can justify some types of special treatment.
U.S. lobbyists will still be sharpening their claws. But the increasingly obvious effects of climate change could well blunt political pushback in the next decade. And another von der Leyen pledge, for a larger cut in the EU’s own CO2 emissions by 2030, will not mean much less unless Europe levels the playing field for its companies.
Basically, she needs to persuade the world that a BCA is fair, not unduly burdensome, and not really a tariff. That will be not easy, but the global direction on climate change is working in her favour.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.