Guest essay by Eric Worrall
If the upcoming COP26 climate conference in November does not make progress on the way to a global carbon pricing system, the EU will impose a carbon limit tax. However, there is no practical way to make such a levy work. A CO2 tax at the EU border would be a choice for EU exporters between fraud with carbon carousels or ruin.
Why the EU’s proposed CO2 border tax is an important test for global action against climate change
January 29, 2021, 1.39 a.m. AEDT
Neil Kellard
Dean, Professor of Finance, Essex Business School, University of Essex
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The current price for a greenhouse gas allowance is around EUR 33 per tonne, a price that is already well above the average over the life of the ETS. In order to achieve the EU climate protection targets, however, this price must be closer to EUR 40 by 2030 and EUR 250 by 2050. Given the significant cost of either paying for allowances or investing in small amounts for EU companies, non-EU based companies have a significant competitive advantage if they are not faced with similar regulatory controls in their own countries.
For this reason, the European Commission, the executive branch of the EU, plans to submit its CO2 limit levy in June 2021 as part of its Green Deal planning. Frans Timmermans, the first Vice-President of the European Commission, recently highlighted the following:
“It’s a question of our industry’s survival. So if others are not moving in the same direction, then we must protect the European Union from distortions of competition and from the risk of carbon leakage. “
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Read more: https://theconversation.com/why-the-eus-proposed-carbon-border-levy-is-an-important-test-for-global-action-on-climate-change-154041
Why do I say a carbon tax on exporters is a choice between carbon carousel scam or ruin?
Professor Kellard only mentions the impact of the levy on imports into the EU. But how would the levy affect EU exports?
If EU producers pay a massive carbon price for their inputs, they are crammed – they cannot compete with global producers who do not pay the same price of carbon.
What if the EU panics and tries to give a discount on high carbon exports to keep its export industry from collapsing? In this scenario, they open the door to carousel fraud.
Carousel fraud fraudulently changes the customs description of goods to take advantage of various tax and discount systems. It is a carousel because the same container of goods is imported and exported repeatedly. The only thing that changes is the customs declaration, which is completely fraudulent on at least one leg of the journey.
Even without the possibilities that a CO2 border tax would offer criminals, a CO2 border tax would do nothing to prevent the exit of CO2 emissions and industries from the EU.
Unless the levy was prohibitively high and high enough to start a trade war, it would still make more sense to build the manufacturing center outside the EU, pay the border tax on export to the EU, but keep the costs low and remain competitive if export somewhere else.
But a finance professor should know all of this.
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