Europe wobbles on its history-making carbon tariff

Unless you work in a business that exports goods to the European Union, you probably didn’t notice that history was made on New Year’s Day. Not to be outdone by Switzerland’s swearing in of a seemingly unremarkable new president or Turkmenistan’s legalizing cryptocurrency, Brussels launched the world’s first carbon tariff. Importers bringing goods into the 27-nation bloc now need to buy certificates with prices that reflect how much the process to manufacture the products emitted greenhouse gases. It’s catchily named the carbon border adjustment mechanism. Or CBAM — pronounced SEE-bam — in casual conversation.

Already, the EU is looking for a loophole.

As I explained in my latest piece for Canary Media:

It’s a major global policy experiment — one that will have plenty of opportunities to prove itself as the EU busily expands its trade deals. In January, European Commission President Ursula von der Leyen inked a sweeping free-trade deal with the South American bloc known as Mercosur, putting an end to 25 years of negotiations. The following week, she announced a landmark pact with India, which included pledges to ramp up purchases of steel, pharmaceuticals, and heavy equipment from the world’s most populous nation.

Both agreements share a notable trait: They keep CBAM in full force. But in the background, the von der Leyen administration has been less than steady on the policy and has floated a major change that could undermine the law’s efficacy.

Currently, CBAM doesn’t allow for any exemptions from the tariff. But in an amendment drafted in mid-December, the European Commission pitched giving itself the discretionary authority to temporarily remove the carbon levy from particular imports, and even retroactively apply the exemption.

Heavy industry groups and European parliamentarians across the political spectrum have balked at the commission’s proposal in recent weeks.

That’s because while the carbon tariffs are meant to reduce emissions, they also serve as a type of industrial policy that can level the playing field between foreign and domestic manufacturers. Industrial firms in the EU have long been required to offset their emissions by buying credits on the bloc’s Emissions Trading System market, driving the cost of their products higher than those of goods manufactured in countries without such rules.

Unsurprisingly, farmers are central of this climate policy backlash.

French and Italian agricultural ministers pressed Brussels for the amendment over concerns that CBAM could drive up the price of fertilizer, squeezing farmers’ margins. Such a price shift could risk widespread protests like the so-called nitrogen wars that started in 2019, when the Dutch government’s crackdown on agricultural emissions triggered a revolt among farmers.

But even if the amendment is passed into law, the European Commission cannot halt tariffs at its pleasure. Before suspending the tariff for any products, it must run assessments to determine whether CBAM’s impact on prices of relevant goods, like fertilizer, is significant enough to justify doing so.

“It isn’t clear to me that fertilizer prices would go up by enough to warrant activating 27a over, say, the coming year — even if punitive default values were used,” [BloombergNEF’s Antoine] Vagneur-Jones said. ​“My sense is that we won’t be seeing the provision’s activation anytime soon.”

Still, the proposed pullback highlights ​“a growing conviction among Europeans that the EU is more or less fighting climate change alone,” said Adam Błażowski, the supervisory board chairman of the climate group WePlanet, which advocates for what it sees as pragmatic solutions, such as nuclear power and genetically modified crops.

“This may not be entirely accurate, but this trend only increased after the United States’ second departure from the Paris Agreement,” he said. ​“Mechanisms like CBAM function to preserve a certain level of equality between different economies, but rapidly progressing climate change is a global problem that needs global solutions. Unfortunately in an age of kinetic and trade wars all around Europe, this seems to be an increasingly difficult task.”

There’s more to the story, including which countries may implement a which you can read here on Canary Media.

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Signing off from snowy Bay Ridge, Brooklyn, where little Honda Accord is once again completely buried in snow after just thawing from last month’s blizzard.