Almost a decade ago, the European Union proposed a novel strategy to cap greenhouse-gas emissions from the airline sector. Foreign airlines using the EU’s airports would be forced to either cut emissions or buy carbon credits. It didn’t work. The proposal raised the fury of the US and China, who feared billions in charges. Facing angry trading partners, the EU backed down. Today, aviation is one of the world’s fastest-growing sources of emissions.
Last week, the EU announced its intention to bend the trajectory of the world’s emissions down yet again. That wasn’t the headline: It was the EU’s “Green Deal,” a slate of 50 or so proposed policies to make the bloc net carbon-neutral by 2050. But deep inside the measures was something called a “carbon border adjustment mechanism,” according to leaked European Commission documents. Proposed for the steel, cement, and aluminum sectors in 2021, the de facto border tax (pdf) would force importers to buy allowances of CO2 emissions in the EU (now priced around €25 per tonne).
It’s designed to put domestic producers of goods on the same playing field as foreign manufacturers. A steel maker in Europe, for example, must pay for credits to emit carbon dioxide from the EU Emission Trading System after it has surpassed its allotted emission credits. Foreign firms do not. The carbon adjustment cost reflects the carbon price had the goods been made domestically. Analysts estimate such credit costs could account for about 5% to 10% of the gross cost of steel and more for cement.
If the EU succeeds at imposing what is effectively a carbon border tax, it will have achieved something significant: A global incentive for firms to cut emissions without ever signing a climate deal. In theory, companies in targeted sectors that wish to sell into the 28-nation bloc, the world’s largest economy by some measures, will have to meet the EU’s own standards or pay up. It may even expand to shipping and, yes, aviation.
Why would a carbon border tax succeed today when a very similar strategy failed with airlines in 2014? The geopolitics are different, says Michael Mehling, a researcher at the Massachusetts Institute of Technology’s Energy Initiative. “The question is whether the EU will be more resolute, and smarter about the process,” Mehling told Quartz.
The EU had a few things working against it before: Free trade was ascendant, the US was a diplomatic powerhouse, and America led climate talks. None of that is true today. The Trump administration has escalated global trade wars. American diplomacy has been hollowed out by an exodus of career diplomats from Foggy Bottom and abroad. The White House, which has promised to yank the US out of the Paris climate accords as soon as possible, sent no high-ranking officials to the climate talks in Madrid this month. Without its trading partners unified against it, the EU may find it easier to implement its latest program.
The mood has shifted as well. A decade ago, when carbon border adjustments were formally floated, the benefits weren’t as clear, and political costs were real. Obama signaled his disapproval of a 2009 climate bill over free-trade worries.
“Things have evolved a fair amount since then,” says Carolyn Fischer, a senior fellow with Resources for the Future. “The topic is much less controversial.” Legal scholars feel the EU is on solid footing to comply with World Trade Organization rules. The EU carbon price has climbed five-fold since 2017. There’s also a flood of new data: About 50 different efforts around the world (paywall) now price carbon in schemes that account for about 15% of annual global greenhouse-gas emissions.
But the devil is in the details. In a 2019 paper Fischer co-authored, she called a carbon border tax one of the most efficient unilateral actions to curb global emissions—but also one of the most challenging to get right. “Designed well,” says Fischer, “it should not have a problem.”
Even if a carbon border tax levels the playing field—for now—Europe can’t get there alone. Eventually, the world will need to strike a deal to realize the net-zero decarbonization targets recommended by scientists by 2050. Without it, carbon-intensive export industries may concentrate in a few unaccountable countries, while the rest of the world claims cuts.
This is already happening. Switzerland and Sweden, for example, already import more greenhouse-gas emissions in the form of goods than they produce domestically, says Mehling. “In the future, you can get a handful of countries left in the world emitting while everyone else says, ‘We’re clean, we’re clean,'” he says. “It will become more and more of an issue if we are not able to get all countries moving in this direction.”