Significant boost to Europe’s climate change goals

2023 was a big year for climate news, from record heat to world leaders finally calling for a transition away from fossil fuels. In a little-known milestone, this year also saw the European Union soft launch an ambitious new initiative that could strengthen climate policy.

Wrapped in arcane language peppered with the words “the,” “while,” and “considering,” the policy will not only fund the European Union’s pledge to become the world’s first carbon-neutral continent; , the world needs to reduce its carbon footprint, which could boost industries around the world.

It is the establishment of a carbon price that would force many heavy industries to pay for every equivalent amount of carbon dioxide, or other greenhouse gases, that they emit. But what makes this fee revolutionary is that it also applies to emissions that do not occur on European soil. The EU already puts a price on many of the emissions produced by European companies. Currently, through the new Carbon Border Adjustment Mechanism (CBAM), the EU will impose tariffs on companies anywhere in the world that import eligible products into the EU, including cement, aluminum, electricity, fertilizers, hydrogen and steel. . The product is made.

Aaron Cosby, an economist at the International Institute for Sustainable Development, an environmental think tank, said these industries are often large and persistent sources of greenhouse gas emissions, and the fight against climate change requires them to be He says the key is to deal with it. If these companies want to continue doing business with European companies, they will have to liquidate or pay fees. This creates an incentive for companies around the world to reduce their emissions.

The first phase of CBAM, which began in October 2023, will require companies importing these materials into the EU to report the greenhouse gas emissions associated with the production of their products. From 2026, customs duties will have to be paid.

Cosby said just being required to provide emissions data would be a big step for some producers and could provide valuable data for climate researchers and policymakers.

“I can’t tell you how many times I’ve gone through this exercise of trying to determine the greenhouse gas intensity of exports from a particular country at the product level. “We had to go through the most amazing, grueling process to determine the amounts,” he says, “and give us those estimates.” “And now it will be served on a plate.”

Side benefits at home

The new carbon price is aimed at companies abroad, but will also help the EU pursue its climate ambitions at home. First, the additional revenue could be used to finance climate-friendly projects and promising new technologies.

But it also allows the EU to step up domestic pollution. Since 2005, the EU has set maximum values, or caps, on emissions produced by various industrial “facilities” such as oil and metal refineries. This would allow businesses in the region to use credits or allowances for every tonne of carbon dioxide (or equivalent emissions of other greenhouse gases) they emit, up to a cap. Currently, some allowances are given for free, while others are bought at auction or traded with other companies in a system known as the carbon market.

But this idea that harming the planet is costly creates a conundrum. When doing business in Europe, too much Expensive European industries may flee the continent to countries without such high fees or strict regulations. That would damage Europe’s economy and do nothing to solve the environmental crisis. Greenhouse gases will still be emitted, perhaps more so than if the product were manufactured in Europe, and climate change will continue to become more destructive.

The Carbon Border Adjustment Mechanism aims to impose the same carbon price on products manufactured abroad as domestic producers have to pay under the EU system. In theory, this would allow European companies to remain competitive against imports from international rivals. It will also address environmental issues by encouraging overseas companies to reduce their greenhouse gas emissions rather than proceeding as usual.

This means the EU can further strengthen its domestic carbon market system. Hoping that concerns about international competition have subsided, the government plans to phase out some of the free emissions allowances and other generous measures that existed to maintain the competitiveness of domestic industry.

That’s a big deal, Cosby says. Dozens of countries have introduced carbon pricing schemes, but with exceptions to prevent heavy industry from being wiped out by international competition. With carbon border tariffs, the EU could force its industries and consumers to pay a real price, he says.

“That’s ambitious. No one else in the world is doing that.”