The Economics of Emissions EU Considers Carbon Tariff on Imports

The European Commission is debating a policy to charge companies that import goods into Europe for the carbon dioxide they emitted during production.

European Union leaders strive to portray themselves as being on the front line of global efforts to combat climate change. They boast that the EU has agreed to cut emissions 20 percent below 1990 levels by 2020, well beyond the requirements of the Kyoto Protocol. And both the United Kingdom  and Germany  recently announced plans to expand their commitment to renewable energy. Their strategy, it seemed, was to lead by example.

But they appear to be considering less subtle tactics.

The European Commission is considering a carbon tariff on goods from countries where greenhouse gas emission policies do not match European standards. The tariff system would force companies that import products into Europe to buy EU carbon emissions permits through the Emissions Trading Scheme (ETS) -- the ETS already obliges European firms to buy and sell excess carbon dioxide emissions, thereby creating a continental cap on carbon dioxide emissions.

Some EU officials have publicly opposed the proposed tariff. European Trade Commissioner Peter Mandelson told Reuters that such a scheme would be hard to implement and could lead to trade disputes.

A spokesperson for the European Commission's secretary of environment, reached by SPIEGEL ONLINE, confirmed that the tariff is under discussion but declined to comment further.

The proposed tariff is one facet of a larger debate on emissions control policies that will govern Europe after current regulations expire in 2012. A package of climate policy proposals is due to be published by the commission later this month.

France, in particular, is a supporter of the potential tariff. Both former president Jacques Chirac and current president Nicolas Sarkozy have warned that overly strict emissions regulations could hobble the competitiveness of European countries. In October, Sarkozy urged European leaders to "examine the option of taxing products imported from countries that do not respect the Kyoto Protocol."

The United States is the only major developed nation not to have signed the Kyoto Protocol, which binds major developed nations to make emissions cuts in a period from 2008 to 2012. The protocol also does not bind large developing polluters including China and India to make any cuts, which European leaders are concerned could give manufacturers in those nations on edge on European firms.

A preliminary draft of the climate proposals under discussion, obtained by Reuters, reveals that the commission is also considering an expansion of the ETS. Tighter regulations are necessary, the draft argues, to meet Europe's stated goal of drastically reducing emissions by 2020. Current trading of carbon credits on the ETS market is worth $37 billion (€25 billion) annually. The commission's proposal would greatly increase that value, by decreasing the percentage of free carbon credits that are distributed to European power generators and manufacturers -- 90 percent are currently given out for free, whereas up to 60 percent would be auctioned off annually beginning in 2013.

Commission officials will continue to debate the proposals for the next two weeks, before they are published on Jan. 23. Then Slovenia, which currently holds the rotating EU presidency, will set a timetable for discussion among EU leadership.


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