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European Parliament calls for introduction of cross-border CO2 tax

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Photo: European Union 2019 – European Parliament / Emilie Gomez

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March 12, 2021

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Published:

March 12, 2021

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To raise global climate ambition and protect its economy’s competitiveness, the EU must place a carbon price on certain products including electricity from less climate-ambitious countries, members of the European Parliament said in a resolution.

The carbon border adjustment mechanism (CBAM), also known as a tax on carbon dioxide, should cover all imports of products and commodities covered by the European Union’s Emission Trading System or EU ETS, according to a new resolution that the European Parliament adopted with an overwhelming majority. The levy for other countries is intended for the power sector and energy-intensive industry like cement, steel, aluminium, oil refinery, paper, glass, chemicals and fertilisers, the document said.

The tool must be compatible with the rules of the World Trade Organization and not be misused to enhance protectionism, members of the European Parliament stressed after voting 444 against 70 to adopt the resolution on the CO2 tax. There were 181 abstentions. The CBAM needs to be introduced by 2023, they said.

Revenue-generating tool against carbon leakage

The resolution underlines that the EU’s increased ambition on climate change must not lead to so-called carbon leakage as global climate efforts will not benefit if production is just moved to non-EU countries that have less ambitious emissions rules. Carbon leakage is the potential shifting of greenhouse gas emitting industries outside the 27-member trade bloc to avoid tighter standards.

European Parliament rapporteur Yannick Jadot says the CO2 tax would push trading partners to be equally ambitious about climate in order to enter the EU market

Revenues generated should be used as part of a basket of own revenues to boost support for the objectives of the European Green Deal, MEPs add in the nonbinding document.

“The CBAM is a great opportunity to reconcile climate, industry, employment, resilience, sovereignty and relocation issues. We must stop being naïve and impose the same carbon price on products, whether they are produced in or outside the EU, to ensure the most polluting sectors also take part in fighting climate change and innovate towards zero carbon. This is our best chance of remaining below the 1.5 degrees Celsius warming limit, whilst also pushing our trading partners to be equally ambitious in order to enter the EU market,” rapporteur Yannick Jadot stated.

European Parliament votes to maintain scheme for free CO2 credits

The European Commission is expected to present a legislative proposal for the CBAM in the second quarter as part of the European Green Deal as well as a proposal on how to include the revenue generated to finance part of the EU budget.

Keeping free CO2 allowances for the domestic industry after CBAM is rolled out may be interpreted as double protection

The European Parliament rejected a proposal earlier this week to phase out free CO2 pollution credits for industries covered by the ETS when the CBAM is in place, with 334 against 329 votes. However, MEPs add the new mechanism mustn’t become an additional protection tool for EU installations. Electricity production and energy-intensive industrial sectors represent 94% of the EU’s industrial emissions.

Representatives of the domestic industry say free CO2 allowances ensure competitiveness and that they should be maintained at least until the CBAM’s effectiveness is proven while many European lawmakers point to the risk of having double protection. The CO2 tax could have a big impact on the EU’s trading partners including the Western Balkans, especially the countries that are reliant on coal.

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