The EU’s proposal for a carbon border tax is a central element of the EU Green Deal adopted in December 2019. On March 4, 2020, the European Commission launched an impact assessment for a proposed carbon border adjustment mechanism. The aim is to create a level playing field for EU producers competing with foreign manufacturers that do not face similar industrial pollution constraints by measuring carbon content of imported goods.
Feedback Open Until April 1
As part of the impact assessment of the proposed measure, the European Commission has opened a feedback period until April 1, 2020 to gather views on the initiative. Interested companies are invited to give their feedback on the initiative in general.
Various options could include:
- A carbon tax on selected products, both imported and domestic
- A new carbon customs duty or tax on imports
- The extension of the EU European Trading System to imports
While this sounds positive in theory, in practice the tax introduces significant challenges. The Commission is currently considering how the tax could be designed in conformity with World Trade Organisation rules.
The Impact of a Carbon Tax on Customs
Apart from WTO compliance, another important question remains: what will the implications be from a customs point of view? This will ultimately depend on the design of the measure.
A carbon tax can take various forms, but as its name suggests, it will probably be designed as a tax or customs duty imposed on the carbon content of imported goods. The practical application of such a tax is questionable, as it would require the measurement of the carbon footprint of all foreign products imported into the EU. In order for this to happen, the EU would have to design a carbon rating measuring mechanism and set up a private agency in charge of verifying CO2 reports issued by foreign producers trying to export to the EU. This private agency would also probably need to issue CO2 content certifications. Implementing all of these measures will be monumental, and undoubtedly accounted for in the impact assessment. An important part of the work will also relate to the selection of sectors subjected to this measure.
Following the feedback period, the European Commission will fine-tune its initiative and open public consultations with more targeted questions for affected industries. The public consultations are planned for Q3 2020 while the adoption of the measure is planned for Q2 2021. More information about the timeline can be found here.