There is no shortage of superlatives: the largest climate law in the world, the world’s first climate tax at the border. The EU is patting itself on the back. But it could also become the biggest bureaucratic nightmare.
Those who pollute the environment should pay for it. The EU is expanding its emissions trading system and introducing a climate tariff. Shipping is also to be included. The accusation of protectionism is in the air.
carbon dioxide border adjustment system. Admittedly, the word monster that describes one of the EU’s latest achievements can also be a bit shorter: CO2-Border adjustment. Colloquially, it is spoken of a climate tariff. And it’s not just a climate tariff, officially avoiding the word tariff: it would be the first of its kind anywhere in the world.
Representatives in Brussels can almost be heard expressing their satisfaction that the EU is playing a pioneering role in this. The European countries are also getting into trouble with trading partners and at the same time seem to be somewhat despondent about the matter: a curious mixture.
Escape the climate spiral
As complicated as the term may sound, the basic idea has its economic and political appeal. If one country has a stricter climate policy than another, the production of CO2-intensive goods migrate from the first country. This would result in economic losses. In addition, the global climate would not be helped because emissions would occur elsewhere. In technical jargon, this is called “carbon leakage”.
The emissions trading system and climate measures of the EU are indeed ambitious. In principle, it is correct to put a price on emissions: whoever pollutes should pay for it. The emissions trading system has now been expanded and tightened. Buildings, transport and shipping are to be subordinated to the system. Free allocations of “pollution rights” are to be reduced over the years until abolished.
maintain competitiveness
The last point in particular worries energy-intensive sectors in the EU, which are currently being hit by high energy costs anyway. In order to remain competitive without free certificates, the border adjustment should put companies on an equal footing with competitors from countries with less strict climate protection. One weakness of the concept, however, is that in economic studies it is still controversial whether carbon leakage is a problem at all.
One can argue that the phenomenon was also little observed because the climate measures were not yet strict. In any case, the EU Commission limits the proposal to the largest CO2-Causers: Cement, Iron and Steel, Aluminum, Fertilizer, Electricity and Hydrogen. The free certificates will be gradually phased out from 2026 to 2034. The transition periods are therefore generous.
Practical problems abound. The documentation requirements required for border adjustments could become a bureaucratic monster, and trading costs are likely to increase sharply. The accusation from many countries that protectionism is being done in green cloaks is understandable. Another open question is to what extent the EU border adjustment will comply with the rules of the World Trade Organization (WTO).
Switzerland docks to the EU
An alternative to border adjustment would be a broad-based climate club with like-minded countries, which would also punish “climate sinners” with more difficult market access. A few days ago, the industrialized countries united in the G-7 founded such a club. However, the explanation for this is flimsy and vague. The EU going it alone is not surprising, especially since Brussels is convinced that the European border adjustment will have many imitators.
Initially, little is likely to change for Switzerland. Swiss companies already participate in the EU trading system. If Switzerland adopts the changes to emissions trading, it need not fear that export goods will be burdened in the future. Whether it should introduce border adjustments for itself is another question. The bureaucratic costs, more expensive intermediate products for industry and the shortcomings of the concept speak against it.
The danger of even more protectionism in world trade is great. While international cooperation is difficult, action within the framework of the WTO for general rules on carbon leakage would be a better way to refute allegations and retaliatory measures. At the same time, it is also important to enable free trade in green technologies and not to make it more difficult through industrial policies like in China, the USA and the EU. Even well-intentioned green fortresses remain fortresses.
You can contact business editor Gerald Hosp follow on twitter.