The European Union struck a preliminary deal on December 12 to impose a carbon dioxide emissions tax on imports of polluting goods such as steel, cement, fertilizers, aluminum, and electricity from 2026, as reported by Reuters on December 13. The tax aims to reduce carbon emissions and support European companies competing with countries with lower carbon dioxide pricing. Specifically, importers of carbon-intensive goods will be required to buy permits for their carbon emissions at the same price paid by domestic producers under the EU’s Emissions Trading System (ETS). There will be a three-year transition phase for the carbon emissions tariff starting in 2023. 

The EU has set an ambitious goal to reduce carbon emissions by 55% by 2030 from 1990 levels and reach carbon neutrality by 2050. However, it remains unknown when the border levy will replace the free carbon dioxide emissions permits domestic industries currently receive. There are also concerns that the carbon border tax could violate World Trade Organization (WTO) rules and result in trade disputes among countries. The new tariff is part of the EU’s Carbon Border Adjustment Mechanism (CBAM), which will be gradually implemented starting January 2023. During the initial phase-in period, importers will only need to report their carbon emissions obligations. 

Sources:

https://www.reuters.com/markets/carbon/eu-strikes-deal-world-first-carbon-border-tariff-2022-12-13/

https://home.kpmg/xx/en/home/insights/2022/08/carbon-border-adjustment-mechanism-impacts.html

https://www.ft.com/content/51e6bd85-dbb2-4071-b635-8ab9bd2ab95b

https://www.politico.eu/article/european-union-carbon-border-tax/