The war in Ukraine warrants a more cooperative method to raise climate ambition in third countries,\u00a0writes Karsten Neuhoff and Andreas Goldthau.<\/p>\n\n\n\n
The EU\u2019s carbon border adjustment mechanism (CBAM) has raised much debate about European agency in international climate policy. It is motivated by the fact that the EU\u2019s main climate policy tool \u2013 an ETS-based carbon price \u2013 raises the costs of energy-intensive production at home, thus risking industrial relocation abroad. <\/p>\n\n\n\n
To avoid such carbon leakage, energy-intensive industries have so far been granted free allowances. Yet, this largely mutes the carbon-price incentive for cleaner production. <\/p>\n\n\n\n
The remedy: a carbon levy at the border equivalent to the EU\u2019s price of CO2, levelling the playing field between domestic and imported goods, which allows carbon pricing to foster the industrial transition. <\/p>\n\n\n\n
In addition, the CBAM also sets an incentive for third countries to put in place carbon pricing regimes to avoid disadvantages for their exporting industry.<\/p>\n\n\n\n
The practicalities of this design choice are not trivial. Observers pointed to issues related to compatibility with the World Trade Organisation (WTO). Moreover, some EU industries will still come out at a disadvantage. <\/p>\n\n\n\n
While imports indeed face a charge at the level of domestic CO2 abatement costs, European exports will not be granted exemptions from carbon pricing. Abroad, they will compete with comparable goods produced at much lower costs. <\/p>\n\n\n\n
This raises the spectre of export-oriented industry eventually relocating production, and hence emissions, regardless of an EU carbon border regime.<\/p>\n\n\n\n
The administrative costs of monitoring product-level emissions are also significant. Tracing the specific carbon intensity along highly complex supply chains requires disproportionate auditing efforts. <\/p>\n\n\n\n
Against this backdrop, a carbon border adjustment is currently envisaged for basic materials and basic material products only, including steel, cement and fertilisers. Chemicals, arguably highly energy-intensive products, are deemed too complex and therefore excluded. <\/p>\n\n\n\n
Global trade flows may simply shift: climate-friendly products end up being sent to the EU while dirtier ones find their way to places without a carbon border regime. The effect is particularly strong for indirect (electricity-related) emissions \u2013 a reason why aluminium is also not covered by the CBAM. <\/p>\n\n\n\n
In light of these challenges, the EU has opted for a ten-year phase-in of its carbon border tax from 2026 onwards, something currently under negotiation between the EU countries and the European Parliament. This risks procrastinating effective CO2 pricing and the industrial transition altogether.<\/p>\n\n\n\n
Most importantly, however, it is the war in Ukraine which warrants a rethink of the envisaged CBAM. This is for three reasons.<\/p>\n\n\n\n
First, steel, cement or fertilisers consumed in Europe mainly stem from Russia, Ukraine and Turkey. Trade with Russia is down and arguably for good. Turkey may be needed to hedge Moscow\u2019s geopolitical ambitions. Ukraine needs cooperation, economic stabilisation and industrial reconstruction.<\/p>\n\n\n\n
Second, emerging nations are dragging their feet regarding economic sanctions against Russia. This drives home these countries\u2019 deep-sitting reservations against trade measures if used for non-trade purposes, regardless of whether they are related to climate targets or geopolitical scheming. A behaviour it would be cheap to blame them for, given the rich nations\u2019 track record in using trade measures to hedge their own industry to the detriment of countries in the Global South. <\/p>\n\n\n\n
Finally, designing a CBAM to compel India, Brazil, Indonesia or South Africa into adopting domestic carbon pricing models may simply speak to the levy\u2019s growing reputation as disguised \u2018green protectionism\u2019. <\/p>\n\n\n\n
As the decoupling between the West, China and Russia are on its way, Europe should keep emerging economies on its side to support an ambitious climate agenda. It needs to choose its instruments wisely.<\/p>\n\n\n\n
To be clear: a carbon border adjustment will be needed for the carbon price to work and cut EU industrial emissions. Yet, Brussels should let go of the idea of designing a CBAM to proliferate carbon pricing globally. <\/p>\n\n\n\n
Rather, it should be left to trading partners to pick and choose the instruments they deem most appropriate for decarbonising their economies. In support of the latter, the EU can, and should, make tangible and ambitious offers. <\/p>\n\n\n\n
Climate finance anchored in bilateral cooperation as the one currently evolving with South Africa or India is central to this support. <\/p>\n\n\n\n
CBAM revenues can be redirected to help emerging economies green their industrial base. In Ukraine, it should underpin a green Marshall Plan and support its path toward a post-war low-carbon economy.<\/p>\n\n\n\n
The way forward is a carbon adjustment based on excise duty, also known as climate contribution. Rather than going down the long and windy road of measuring CO2 emissions in the country of origin, the climate contribution would be based on standardised emission intensity values \u2013 applied equally to domestically and imported materials like steel, cement or plastic. <\/p>\n\n\n\n
This way, it also covers basic materials as part of manufactured products. What sounds complex is, in fact, an already common practice for other excised goods (e.g., alcohol, tobacco, energy). The duty can be waved when materials are exported, also as part of manufactured products.<\/p>\n\n\n\n
A CBAM based on a climate contribution sets a clear incentive for climate-neutral production. The basic materials sector remains subject to emissions trading but will see continued free allowances for the transition period to climate neutrality. <\/p>\n\n\n\n
However, the latter would only be granted to companies that enact credible and robust strategies toward decarbonisation. The result: the EU CO2 price remains an effective, central driver of EU emissions reductions without risk of carbon leakage and industry is relived from double charges. <\/p>\n\n\n\n
As part of their impact assessment, the European Commission already vetted an excise duty-based CBAM as a possible design option. It should now opt for it as part of cooperative Green Deal diplomacy. <\/p>\n\n\n\n
The EU can exert leadership through the unwavering support of ambitious third countries and leave it to their respective governments to use the most promising instrument \u2013 be it carbon pricing or other.<\/p>\n\n\n\n
Karsten Neuhoff is Head of Climate Research at the German Institute for Economic Research and Professor in Economics at the Technical University of Berlin. Andreas Goldthau is Director at the Willy Brandt School of Public Policy, Professor at the University of Erfurt, and Research Group Lead at the Institute for Advanced Sustainability Studies in Potsdam.\u00a0\u00a0<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" The war in Ukraine warrants a more cooperative method to raise climate ambition in third countries,\u00a0writes Karsten Neuhoff and Andreas Goldthau. The EU\u2019s carbon border adjustment mechanism (CBAM) has raised much debate about European agency in international climate policy. It is motivated by the fact that the EU\u2019s main climate policy tool \u2013 an ETS-based […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_seopress_robots_primary_cat":"none","nova_meta_subtitle":"The EU is inching closer to implementing a carbon border adjustment mechanism (CBAM), but the proposal is complex and too ambitious","footnotes":""},"categories":[5571],"tags":[15386,13087],"supplier":[5585,1923,3035,1323,90],"class_list":["post-114174","post","type-post","status-publish","format-standard","hentry","category-co2-based","tag-carbonemission","tag-climate","supplier-european-union","supplier-fachhochschule-erfurt","supplier-technische-universitaet-berlin","supplier-universitaet-potsdam","supplier-world-trade-organization-wto"],"_links":{"self":[{"href":"https:\/\/renewable-carbon.eu\/news\/wp-json\/wp\/v2\/posts\/114174","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/renewable-carbon.eu\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/renewable-carbon.eu\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/renewable-carbon.eu\/news\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/renewable-carbon.eu\/news\/wp-json\/wp\/v2\/comments?post=114174"}],"version-history":[{"count":0,"href":"https:\/\/renewable-carbon.eu\/news\/wp-json\/wp\/v2\/posts\/114174\/revisions"}],"wp:attachment":[{"href":"https:\/\/renewable-carbon.eu\/news\/wp-json\/wp\/v2\/media?parent=114174"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/renewable-carbon.eu\/news\/wp-json\/wp\/v2\/categories?post=114174"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/renewable-carbon.eu\/news\/wp-json\/wp\/v2\/tags?post=114174"},{"taxonomy":"supplier","embeddable":true,"href":"https:\/\/renewable-carbon.eu\/news\/wp-json\/wp\/v2\/supplier?post=114174"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}