EU's Carbon Border Tax Likely Will Be Followed by Many Others, Panelists Say

A former EU director general for the bloc's climate action directorate defended its Carbon Border Adjustment Mechanism, saying it's not designed to protect European heavy industry against imports from lower-cost economies.

Jos Delbeke, now a professor of international governance at the European University Institute in Florence, Italy, said the fee is paid by domestic producers too, and it is about embedded carbon. He noted that the CBAM charge will be reduced when the exporting factory pays an explicit carbon price in its home country.

"What is not clear," he said, is "what minimum requirements we are putting forward for the carbon pricing systems to be taken into account?" He said the current price of the emissions trading system unit per ton of carbon is about 80 Euros. Some countries with carbon trading systems are only valuing carbon at one or two Euros, he said, and there's a wide range in between.

Delbeke was one of a number of panelists discussing carbon border taxes at the trade pavilion at the UN climate summit in Dubai. James Mwangi, founder of the Climate Action Platform for Africa in Nairobi, also spoke on the panel, saying that while he understands why African countries ask for exclusions because of the difficulty of complying, he thinks that is short-sighted.

He said most heavy industry, which is economically valuable, is done in temperate zones, where there are limited reserves of renewable energy, while most of the world's raw materials are from tropical countries with burgeoning populations. He hopes carbon border adjustment taxes drive climate arbitrage in a manner different from how it's talked about in the U.S. or Europe -- he hopes it convinces companies to expand smelters or mills in Africa or Brazil.

"Fair application means more production should be done where there is more renewable energy," he said.

But, he said, the devil is in the details. "Who does the reporting and how?"

Lauren Stowe, from Washington, D.C.'s Silverado Policy Accelerator, said that's the attractiveness of proposals for a carbon border tax in Congress -- the reporting is simplified because they use a carbon intensity benchmark by commodity.

She said if the tax is levied based on a national average of production for the exporting country, it "simplifies the math for small and medium-sized enterprises. It gives you simplicity, also, of administrability, in a way that makes it more possible to ramp up."

Stowe and Frank Jotso, lead on Australia's carbon leakage review, as that country considers carbon trading and carbon border taxes, both noted that it's politically difficult to talk about carbon pricing in their countries.

Stowe worried that if a U.S. and Australian border tax come into force, and they are looser than the EU version, those markets will attract more exports from countries with more polluting industries.

Two of Brazil's major exports are crude oil and iron ore, early targets of the EU's CBAM. Pedro Rochedo, a professor at Khalifa University and Federal University of Rio de Janeiro, Brazil, said Brazil also is working on a carbon trading system, and the government is worried about how a tax will affect its export competitiveness. Rochedo said he thinks Brazil's very green power sector will help exports affected by carbon duties, but he's not sure what would happen if the schemes expand to food. He said that unfortunately, because politicians feared applying carbon taxes to agriculture would drive up food prices, that sector will not be in the trading system.

He said ag should be covered, to root out bad practices. He said research of a few years ago estimated that "20% of the soy and 16% of the meat that was exported from Brazil to the EU was tainted by illegal deforestation… ." The EU is trying to address that issue through deforestation due diligence measures (see 2312050079).

Stopping rain forest destruction "is fundamental and critical for Brazil to achieve its climate goals," he said.