Tax deployed as Europe’s biggest weapon to halt climate change

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The region with the highest taxes in the world is weighing how to use them in the fight against climate change.

The European Union’s executive arm began work on revising the way it puts levies on fuel and electricity. It’s also looking at a far more controversial plan that would tax imports from polluters outside the bloc on their carbon footprint.

The measures are aimed at making sure global competition doesn’t undercut its companies that are focused on shifting away from fossil fuels toward a low-emissions business model.

“Taxation will have an essential role to play in delivering on our climate commitments,” Paolo Gentiloni, the EU’s economy chief, said on Wednesday. Environmental taxes are more growth-friendly and “can encourage more responsible behavior and help offset the costs of the environmental transition,” Gentiloni said.

A consultation period on the rules began Wednesday, and an impact assessment along with legislative plans are due next year.

The proposals by the European Commission, which are subject to approval by EU governments and the bloc’s assembly, will address the minimum tax rates covering energy products. They aim to fix imbalances between petrol and diesel rates, Gentiloni said. They will also seek to phase out reductions, exemptions and subsidies for fossil fuels and promote renewable energy and energy efficiency.

Wednesday’s announcements came as the Commission unveiled the outline of laws that will make it binding for the bloc to eliminate its net carbon emissions by 2050, essentially turning Europe into the world’s first climate-neutral continent. The EU has what might be an even bolder proposal in the works for preventing the rest of the world from wiping out those cuts, and killing lots of European jobs at the same time.

The program would involve taxing some of the carbon produced by the European factories’ global competitors through what’s known as a border carbon adjustment mechanism. The commission wants to ensure that imported goods makers face the same costs of emissions as European companies.

“We need to safeguard against companies shifting production to parts of the world where standards are more lax,” Gentiloni said. “That’s where the carbon border adjustment mechanism comes in.”

The EU is well aware that it might be on thin ice, and that the plan risks opening a new source of international trade tensions, since other countries might call it a tariff, and a potentially illegal one at that. That’s part of the reason the Commission launched a process to collect feedback and comments from citizens and stakeholders to inform its preparatory work.

“Before any proposal is made, the various options must be carefully assessed, in particular with respect to WTO rules and other international commitments,” Gentiloni said.

Nikos Chrysoloras
Bloomberg News