EU’s carbon tax may be thinly couched green protectionism

EU’s carbon tax may be thinly couched green protectionism

EU’s carbon tax may be thinly couched green protectionism
Smoke billows from the chimneys of the Belchatow power station in Belchatow, Poland, Oct. 31, 2013. (Reuters)
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On Tuesday, after months of deliberation, the EU adopted an unprecedented mechanism that will subject imports to the single market to the same criteria as the carbon-trading market within the bloc. To start with, the carbon border adjustment mechanism is targeting the most-polluting industries like power generation, steel, aluminum, cement and fertilizers. A surprise entrant is hydrogen, which is being touted by most businesses as a green energy and the future of industry across the world. The EU says it may enlarge the number of sectors going forward, including elements such as plastics and other products that lead to carbon dioxide emissions either directly or indirectly.
While announcing the move, the EU tried to paint it as a way to “incentivize” its own delocalized industry and the industry of its trading partners to adopt its carbon emissions standards, which are arguably among the most advanced in the world. Brussels says the move is aimed at preventing ecological dumping, to not only ensure the decarbonization of the global supply chain but also to ensure that its own producers are not penalized by the tight EU rules while companies outside get a free pass to pollute.
In theory, there can be little to argue with the EU’s position and its statements justifying the move. But in practical terms and, seen from the perspective of the developing countries, most of which will be hurt badly by this so-called carbon tax, the move is thinly veiled protectionism with a sheen of green, the color of the moment.
The EU says that the carbon tax will lead to revenues of more than €14 billion ($14.9 billion) a year, which amounts to about 0.7 percent of the total imports into the bloc in 2021. And since the average import duty is in the low single digits, it could add an additional import tax of anywhere between 10 percent and 30 percent for producers outside the EU.
The news is hardly likely to be welcomed by the EU’s trading partners, notably Brazil, China, India and South Africa, which have all called it green protectionism. Ever since discussions began on the carbon tax last year, it has riled the developing world and even the advocates of free trade. According to a study, the most‐affected products will be Colombia’s cement, China’s plastics, North Africa’s fertilizers and South America’s pulp exports.
Whenever the tax is implemented, which is likely to be late next year at the earliest, it is set to be challenged in the World Trade Organization, since it will violate several basic rules of the WTO, such as the equal treatment of all products coming from any member country and the fact that the application of a carbon tax has not been incorporated into the organization’s rules.
But more than just the WTO rules, it also falls foul of basic morality. For a long time, almost 15 years, developed economies have been trying to wriggle out of their commitments toward the world in terms of slowing down global warming by not only cutting their own carbon dioxide missions dramatically, but also by helping the developing world in multiple ways. One is to provide the necessary technology and finance to allow poorer countries to cut their own emissions and help them deal with the losses they face due to the severe weather events that are now a frequent occurrence all over the world, and to which they are the most exposed.
However, every single developed nation has failed to live up to its word and has instead tried to place the responsibility on the developing countries, which are naturally seeing their own emissions rise due to population growth and the development of their economies. They continue to lag way behind the developed world and most are still struggling to feed and clothe a large proportion of their population.
Not only is the developed world failing to pay up the $100 billion a year it promised by 2020, but it is now trying to bait the developing world into paying for its own emissions, which on a per capita basis remain a small fraction of what the EU and other rich countries produce.
Thus, the EU’s carbon tax will do little to help industries in developing countries become greener. Instead, it will only boost rich country economies even further, at the expense of the poor countries.

Ever since discussions began last year, it has riled the developing world and even the advocates of free trade.

Ranvir S. Nayar

It also rankles that this measure has been pushed through just days after the heated debates concluded at COP27 in Sharm El-Sheikh, Egypt, where the rich countries were pushed into a corner over their perpetual lies about meeting their commitments to help the developing world. They finally had to concede to an agreement on a loss and damage fund, which in principle will see some money flowing to the developing world to deal with the losses caused by climate change.
The EU is not the only rich economy taking this route. Just days earlier, the UK announced that it will open its first new coal mine in more than 30 years. And, weeks before COP27 began, the US pushed through its own scheme, incentivizing companies to manufacture locally to the tune of hundreds of billions of dollars. Though this was said to be targeting so-called green industries, the protectionism was clearly visible. Canada is also reportedly working on its own carbon import tax.
It is evident that the rich countries, instead of fulfilling their own commitments, are now preparing to dump their sins on the rest of the world, mainly the developing countries, which have had little or no role in pushing the world to the brink of climate catastrophe. Instead of trying to push back, the rich countries need to step up and accept responsibility once and for all and honor their commitments in cash and in kind, in word and in spirit, both morally and legally.

  • Ranvir S. Nayar is managing editor of Media India Group.
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