Climate regulation: EU carbon import tax
What is the carbon import tax?
After two years of negotiation, the European Union parliament approved the Carbon Border Adjustment Mechanism, also referred to as the carbon import tax. That means imports that burn too much carbon during production — such as steel, cement, aluminum, fertilizers, electricity, and hydrogen — will be taxed, according to the Wall Street Journal. The price for an EU carbon allowance is around 90 euros a metric ton. These materials are just the first to be covered under the law. Details are still being worked out but the full plan will be phased in between 2026 and 2034.
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Why is it a big deal?
For the first time, climate legislation is directly intertwined with global trade. The carbon import tax will impact the price of raw materials that are needed to build cities and infrastructure. Plus, companies are now faced with figuring out the amount of greenhouse gases that are emitted to make the goods being imported.
Why does the EU want a carbon tax?
The EU is using regulation as a tool to persuade countries to commit to low-carbon trade, according to the Wall Street Journal. While the U.S. approached climate policy from another angle by incentivizing low-carbon technology with tax incentives in the Inflation Reduction Act. The EU already has an emissions trading system, the import tax ensures that EU industries don’t lose out to international competitors from countries where emitting carbon is free.
