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Issue 2
25th
January 2010
C&I Magazine
World considers carbon border taxes after Copenhagen failure
Patrick Walter,
25/01/2010
After the failure of the Copenhagen
climate conference to come up with
any binding emissions targets it
appears that many countries around
the world might take matters into their
own hands. A number of countries in
the industrialised world have already
signed up to domestic commitments
to cut carbon emissions and are
now trying to come to terms with
emissions caps and carbon taxes that
they fear will damage their economy,
particularly heavier industries such as
chemicals. This has led to a renewed
interest in the idea of carbon tariffs or
border taxes on other country’s goods
based on the idea that ‘the polluter
pays’ – at least they pay if they have
not enacted legislation to reduce
carbon emissions.
‘Certainly there are countries
thinking of enacting tariffs, mainly on
the back of the failure of Copenhagen,’
says Alex Desbarres, senior renewables
analyst at Datamonitor. He adds
that any carbon tariffs applied by the
industrialised economies to goods
coming from the developing world are
likely to prove highly contentious.
The idea of a carbon tariff on goods
coming from countries that shun tough
measures to address climate change
has been raised by several countries,
including France, Germany and the US,
but questions remain over the legality
of such a measure as it would be an
artificial barrier to free trade. President
Nicolas Sarkozy is leading the charge in
the EU on carbon tariffs, although his
own plans for a domestic carbon tax
were recently rebuffed for giving too
many industrial polluters a free ride.
Sarkozy’s government had proposed a
flat rate tax that was to have started
in January 2010 and would have put
a price on carbon of around €17/t.
France’s constitutional watchdog,
however, said that 93% of industrial
emissions, excepting transport fuels,
would have been exempt from the tax.
The tax was expected to raise €4.3bn/
year and the government has vowed
to go back over the legislation with the
goal of implementing the carbon tax
on 1 July 2010.
In the US, bills currently being
considered in the Senate and
Congress have provisions that enable
the president to enact carbon tariffs
to protect trade sensitive sectors.
However, these types of tariffs are only
likely to be imposed under very specific
and stringent conditions, Desbarres
says, and even then are unlikely to
come into effect until 2022.
Philippe De Casabianca, senior
counsellor communication, energy,
HSE and logistics programme at the
European Chemical Industry Council
(Cefic), says that industry is generally
concerned about an introduction of a
carbon tariff on foreign goods coming
into the EU, pointing out, for example,
the difficulties it would create when
implemented on an unilateral basis.
‘A border tax would be very difficult to
implement, ineffective and potentially
highly harmful,’ De Casabianca says.
‘How do we handle complex goods
like cars? A single country does not
produce all the raw materials to
produce it. Furthermore, countries
faced with such border measures
could introduce tit-for-tat retaliation
measures that could bring the EU into
a trade war.’
There may also be problems with
trade bodies. De Casabianca says that
such tariffs go against the current trend
of increasing free trade throughout
the world – the globalisation of the
world market. He adds that the World
Trade Organization, the body charged
with regulating global trade, is very
sensitive to attempts to limit trade.
The incoming EU trade chief, Karel
De Gucht, also came out against this
type of border tax at a confirmation
hearing in Brussels. ‘I don’t see that
as the right approach – it’s one that
will lead to lots of practical problems,’
De Gucht said. He warned that there
was a risk of an escalating global trade
war and that other, better, market
oriented approaches to tackle carbon
leakage and overseas emissions were
available.
James Handley, Washington
DC representative for the Carbon
Tax Center, a non-profit advocacy
organisation working to reduce
greenhouse gases around the world,
says that a carbon tariff trade war
would not be so bad from his point of
view. He says that if carbon tariffs are
implemented by one country and other
countries respond in kind then this
would have the effect of successfully
putting a price on carbon – something
that the Copenhagen summit failed
to do. Handley says that the whole
idea of Kyoto – trying to divide up
emissions quotas between competing
countries – was always going to be
difficult and carbon tariffs are a far
more realistic way to tackle climate
change. ‘Trying to slice up a pie that
keeps getting smaller and smaller was
unlikely to lead to a stable agreement,’
he says.
Desbarres says that tariffs could
also be used as a stick to push other
countries towards a global agreement
on emissions. ‘I think some countries
will use tariffs to put some pressure on
decision-makers ahead of COP-16 in
Mexico,’ he says.
The EU will need to think carefully
about its next move, according to De
Casabianca. He points out that the EU
was in effect snubbed at Copenhagen
and not invited to the final round of
frantic negotiations. ‘The EU thought if
it set a good example as a frontrunner
[in tackling climate change] others
would follow, but that didn’t happen.’
Europe’s carbon taxes
Despite France’s stalled attempt to enact a carbon
tax within its own borders, many European countries
have already unilaterally imposed a tax on greenhouse
gases. The UK, rarely considered one of the greener
nations in Europe when it comes to action on climate
change, rather than rhetoric, introduced the relatively
unremarked upon climate change levy in 2001. The levy
imposes a flat rate on fossil fuels and electricity used by
industry, commerce and the public sector. A rebate of 80%
on the levy was available if the business signed up to a
Climate Change Agreement to cut its emissions, although
the UK government recently announced in the pre-budget
report that the rebate would be cut to 65%.
Finland was the first country in the world to
enact a carbon tax in 1990 and it currently imposes a
levy of €20/t of CO2 on all fossil fuels and electricity.
Norway, the Netherlands, Finland and Denmark have all
implemented similar flat rate taxes, while Ireland is in the
process of enacting one.