EU Urges Trading Partners to Impose CO2 Price to Avoid Levy

The European Union called on its international partners to impose a price on pollution, a move that would help them avoid a new carbon import levy planned by the bloc.

The European Commission aims to propose in June a measure that would penalize emissions embedded in some goods brought into the region, possibly in sectors such as cement, steel, fertilizers and power, the EU Economic Affairs Commissioner Paolo Gentiloni said Tuesday. The so-called Carbon Border Adjustment Mechanism is part of the Green Deal, which bids for Europe to reach climate-neutrality by the middle of this century.

While the past several months have seen positive climate signals in countries from China to Japan and the U.S., nations need accelerate the dynamic before the next round of international climate talks in Glasgow, Gentiloni said during a conference hosted by the French government.

“We need to build on such a global trend to set up joint approaches with like-minded international partners, including by introducing equivalent carbon pricing mechanisms,” he said.

The EU wants to play a leading role in the global fight against climate change and plans to toughen its 2030 emissions-reduction goal to at least 55% from 1990 levels. The new import levy would help avoid carbon leakage, a phenomenon where producers move to regions with more lenient pollution rules.

The risk of companies relocating their production abroad is set to grow amid increasing emission prices in Europe, which recently topped 40 euros per metric ton, said French Finance Minister Bruno Le Maire.

Free pollution permits that the EU currently hands out to some companies to protect them from carbon leakage are no longer a sufficient incentive to meet the stricter climate targets, highlighting the need for a more effective instrument, such as a border levy.

While the European Commission is analyzing various design options for the carbon border adjustment mechanism, there’s “some convergence” toward a tool that would operate like a mirror image of the EU Emissions Trading System, according to Gentiloni. In such a “notional ETS,” importers of emissions-intensive goods would have to pay a charge linked to the price of allowances in the world’s biggest carbon market.

“Importers will not be subject to an adjustment that is higher than what applies to domestic EU producers,” Gentiloni said. “The Commission is also reflecting on possible ways to support less developed countries.”

The CBAM will take into account efforts by Europe’s international partners to cut greenhouse gases from industrial production, including through carbon pricing mechanisms, he told the conference.

©2021 Bloomberg L.P.

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