Implementing a carbon border tax could face several complications.
For one, companies hoping to sell certain goods to the European Union would need to monitor and verify the emissions associated with making their products. If countries can’t or won’t do that, the E.U. would impose its own price. Experts say that such verification is possible, but can be tricky.
What’s more, countries such as the United States, China and Russia have all objected to the border carbon tax, raising the prospect of retaliatory tariffs and trade wars. Countries may also try to mount challenges to the border adjustment at the World Trade Organization, although European officials say they are working to ensure the rules will withstand to legal objections. (Among other things, they are calling it an “adjustment” and not a “tax” for legal reasons.)
The European Union has backed down on similar proposals before. A decade ago, European officials wanted to charge foreign airlines taking off and landing in Europe for the carbon pollution they produce. But the E.U. scrapped the idea after heavy pressure from the United States and China.
European officials have left open the prospect that they could negotiate individual trade agreements with different countries that obviate the need for carbon tariffs, particularly with nations that are moving to adopt climate policies. But the details would need to be worked out.
The E.U. proposal still needs to be negotiated among the 27 member countries and the European Parliament before becoming law. While many E.U. companies, such as steel producers, support the idea of a border adjustment, they are less keen on losing their free allowances under the current carbon-pricing program, since that would force them to make more drastic changes to their businesses. That dispute could complicate domestic negotiations.
There is still a great deal of debate among experts over how effective the E.U.’s carbon border adjustment will ultimately be, said Johanna Lehne, a Brussels-based senior policy adviser at E3G, a research and advocacy group that works on climate policy. But, she said, officials saw the policy as vital for addressing fears that the E.U.’s climate policies could place the continent at an economic disadvantage.
“It sends a real signal that the E.U. is serious about trying to decarbonize these industrial sectors,” she said. “And they’re trying to find an answer to a lot of those domestic political concerns.”