European Union: the choice on the Carbon Tax is underway

by | Apr 29, 2021

For many years the process of transformation undertaken at a global level tries to combat climate change and achieve a level playing field worldwide, the European Parliament’s Environment Commission has adopted a resolution to apply a Tax on polluting imports into the European Union (so-called “Carbon Border Tax”). Carbon Border Tax allows the European Union to raise the prices of products from less climate-conscious countries, and thus ward off the risk of relocation of polluting production in countries with less strict regulations.

The reasons for the establishment of the Carbon Border Tax lies in the constant increase of these emissions, so much so that at the end of 2019, the climate emergency was declared by the European Parliament, with the EU’s commitment to reach climate neutrality as soon as possible, in any case by 2050.

The Carbon Border Tax is therefore configured as a key tool for climate policies in the EU and is part of the CBAM (Carbon Border Adjustment Mechanism), i.e. a carbon border adjustment mechanism that guarantees an import price in line with its carbon content. Furthermore, in relation to Carbon Border Tax , the EU is required to formulate a detailed proposal by the second quarter of 2021, which could have a significant impact on the European Carbon Market (also known as the ETS).

The value of the measure has been estimated to vary between 5 and 14 billion euros per year, amounts that will flow into the Recovery Fund with immediate effect.

The purpose of the measure is to discourage those sectors which are considered at risk of the so-called ‘carbon leakage’ – i.e. the transfer of the most polluting activities outside of the EU – by discouraging such transfers abroad and thus making it more convenient to adapt the plants to EU regulations and above all to the pursuit of climate objectives.

CBAM therefore stands as a mechanism of fundamental importance for the emission market, since all the measures adopted will be strongly linked to the prices of the ETS and will contribute to the formation of prices.

As for its practical implementation, it could be based on methodological considerations similar to those of the ETS (unless the exporter certifies a lower carbon content), or definition of products’ carbon content and associate such content with tax or tariff levels.

In the coming months we will therefore see the developments of the public consultation held on July 22 by the European Commission in order to concretely outline the operating methods of the aforementioned CBAM. These consultations will be aimed at encouraging the decarbonisation process for European and non-European industries also to protect the competitiveness of businesses as well as the most polluting sectors with a view to reduce the emissions.

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