The EU Fights Carbon and Loses

The bloc considers establishing a subsidy to offset a tariff meant to offset a tax

By Carlo Stagnaro. He is the research and studies director at the Bruno Leoni Institute. Excerpts:

[The EU] "announced a €600 million temporary fund to help domestic businesses cope with a new carbon border tax"

"During the transitional phase, 2023-25, importers of some carbon-intensive goods (cement, iron and steel, aluminum, fertilizers, electricity and hydrogen) were required to report the embedded emissions of their imports. Next year, they will pay a fee linked to the price of carbon allowances in the EU Emissions Trading System. The distribution of free allowances—set up to protect energy-intensive, trade-exposed industries from foreign competition—will be phased out."

"The direct and indirect emissions of imported goods are difficult to estimate even in countries with strong, transparent reporting frameworks"

"When California introduced its cap-and-trade system and a carbon border fee on imported electricity, generators in neighboring states rerouted low-carbon electricity to California while sending carbon-intensive electricity elsewhere."

"creates a perverse incentive to outsource production of downstream goods. If the cost of EU-made cars or wind turbines rises because the law increases the price of steel, it may become cheaper to import finished cars or turbines."

"importers will need to assess the direct and indirect carbon content of every component"

"exporters will face higher domestic input costs for products under the law, and the announced fund, which is likely incompatible with trade rules under the World Trade Organization, is too small to do much good."