European Union to Impose a Tax on Imported Carbon

This might be the most boring title ever on Treehugger, but it is actually an interesting and important precedent. The European Union is introducing a Carbon Border Adjustment Mechanism (CBAM), a sort of carbon tax on imported materials starting with iron and steel, cement, aluminum, fertilizer, and electricity. According to the EU, the point is to promote the use of low-carbon materials and reduce emissions, and to protect low-carbon producers within the region. The EU explains:

"Climate change is a global problem that needs global solutions. As we raise our own climate ambition and less stringent environmental and climate policies prevail in non-EU countries, there is a strong risk of so-called 'carbon leakage'—i.e. companies based in the EU could move carbon-intensive production abroad to take advantage of lax standards, or EU products could be replaced by more carbon-intensive imports."

The French finance minister calls it "a major step forward in the fight against climate change. We're making the effort to reduce carbon emissions in industry... We don't want these efforts to be of no avail because we import products which contain more carbon."

The process is all very complicated to make it not look protectionist, which it is—protecting European industries that have reduced their carbon emissions from those in other countries that have not. A good example is aluminum; as noted in an earlier post, Chinese aluminum is made with coal-fired electricity and has five times the carbon emissions of Russian hydro-electric powered aluminum. So once the CBAM is in place, Chinese aluminum would cost a lot more than the stuff smelted in Norway with hydropower. Which, of course, doesn't make producers of the dirty stuff very happy. When it was first proposed, China called it anti-competitive, with Liu Youbin, a spokesman for the Ministry of Ecology and Environment, saying at a media briefing:

"CBAM is essentially a unilateral measure to extend the climate change issue to the trade sector. It violates WTO principles ... and [will] seriously undermine mutual trust in the global community and the prospects for economic growth."

The Chinese Ministry of Ecology and Environment is not wrong; this will cause grief for the producers of dirty steel, aluminum, and electricity. As the graph shows, Europeans and Americans have offshored their carbon emissions to China which then ships them back to us embodied in the stuff that we buy from them. It's why we should be counting our carbon where it is consumed, rather than where it is produced. As I wrote in my book "Living the 1.5 Degree Lifestyle":

"Production-based accounting (PBA) measures emissions from everything that happens within a nation’s borders; it is the basis of the Paris Agreement, in which the countries that signed agreed to reduce their own emissions. However, over the past few decades, thanks to globalization, there has been significant de-industrialization in developed countries and a shift of production to developing countries; our carbon emissions have been offshored. That’s why consumption-based accounting (CBA) of carbon makes so much more sense.

If I buy a Haier air conditioner, who is responsible for the emissions that come from making that machine? Should I be able to offshore the emissions involved in their manufacture when it is my choice to buy the machine? We blame China for all that pollution from their factories, but they are making the stuff that we want and we buy. That’s why it’s better to measure consumption: it is a more accurate measure of what each party, whether an individual or a nation, is responsible for."

With the Carbon Border Adjustment Mechanism, the EU is putting a price on carbon consumption. Users of the dirty imports will pay more for low-carbon materials or pay the tax; alternatively, producers could clean up their acts and deliver products with lower carbon content. In a perfect world, there would be a carbon label on everything, not just raw materials, and there would be a carbon tax on everything, encouraging both consumers and producers to look for the lowest carbon sources.

The Swedish steel industry is making it with hydrogen. The Canadian aluminum industry is looking at new processes to make aluminum smelting even greener. Even the cement industry is trying to clean up its act. All of this costs real money. That's why we need border adjustment mechanisms everywhere and on everything.