Europe Mulls Several Carbon Border Tax Options, Official Says

(Bloomberg) --

The European Commission is considering several options for penalizing imports from polluters, amid ever louder warnings that the plan could trigger retaliation from China and the U.S.

Options to impose the so-called carbon border-adjustment mechanism include a tax, a requirement for importers to buy permits in the European Union’s Emissions Trading System, or a new excise duty, said Vincente Hurtado-Roa, head of unit at the Commission’s Directorate-General for Taxation. The Commission -- the EU’s executive arm -- is due to unveil a proposal next year, which will then be subject to amendments and approval by the bloc’s 27 governments and the European Parliament.

The EU wants to eliminate its net carbon emissions by mid-century, while at the same time protecting its businesses from competitors outside the continent which do not have to abide by the same environmental standards. The bloc also says that it seeks to prevent “carbon leakage,” whereby polluting activities simply move elsewhere to avoid strict regulation.

The EU already has in place the world’s biggest cap-and-trade program, or ETS, whereby thousands of heavy industries need to purchase allowances for the CO2 they discharge. “But there is no point in only reducing greenhouse gas emissions at home, if we increase the import of CO2 from abroad,“ Commission president Ursula von der Leyen said in Davos last week, vowing to protect European companies from “unfair competition” if the EU’s international partners don’t start taxing carbon.

“In the ETS, there are two possibilities: one is to ask importers to participate in the ETS; from my perspective it’s challenging, as we set the caps for the EU,” Hurtado-Roa said Tuesday. “It would be easier to create a new sort of pocket of allowances for importers or even to consider fictional allowances that importers would have to buy.”

EU officials acknowledge that the plans to penalize imports of products which were produced with a high carbon footprint may cause a backlash from the bloc’s biggest trading partners. In an interview with Bloomberg TV in Davos last week, the Commission’s economy chief Paolo Gentiloni reassured that any border-adjustment mechanism would be compliant with World Trade Organization rules.

To contact the reporter on this story: Ewa Krukowska in Brussels at ekrukowska@bloomberg.net

To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net, Nikos Chrysoloras, Peter Chapman

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