World's First Carbon Import Tax Approved by EU Lawmakers

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The European Union’s parliament approved legislation to tax imports based on the greenhouse gases emitted to make them, clearing the final hurdle before the plan becomes law and enshrines climate regulation in the rules of global trade for the first time.

Tuesday’s vote caps nearly two years of negotiations aimed at pushing economies around the world to put a price on carbon-dioxide emissions while shielding the EU’s manufacturers from countries that aren’t regulating greenhouse-gas emissions as strictly, or at all. The tax gives credit to countries that put a price on carbon by deducting payments for overseas carbon emissions when goods arrive at EU borders.

The tax has raised concerns in the U.S., where companies worry the plan would erect a web of red tape for companies seeking to export to Europe. It has also drawn criticism from China and parts of the developing world, where manufacturers tend to emit more carbon dioxide than their competitors in Europe and rely more on coal-fired electricity. 

Governments and lawmakers in other countries are already under pressure to follow suit. The U.K. is debating whether to introduce a carbon border tax, while Democrats in Congress proposed legislation to create one.

The EU’s legislation will at first cover imports of iron, steel, aluminum, cement, fertilizer, electricity and hydrogen. Companies will have to begin reporting the emissions of their imported goods starting in October, including the indirect emissions released by the electricity generation that powers overseas factories.

Importers will have to begin paying the tax in 2026. That date coincides with the phasing out of free allowances given to Europe’s manufacturers under the bloc’s emissions trading system. Legislation also approved Tuesday sets a schedule for completely phasing out free allowances between 2026 and 2034. 

During that period, importers will only pay for the share of emissions that European manufacturers aren’t getting for free. That measure is intended to treat domestic and overseas manufacturers equally, key for Europe’s arguments that its border tax doesn’t violate World Trade Organization rules that limit discrimination against foreign firms.

The price per ton of carbon dioxide emissions for imports will be the same as the price for the EU’s emissions trading system, which covers power plants and manufacturers in most sectors. The price for an EU carbon allowance is around 90 euros a metric ton, equivalent to $98.37, and has risen significantly since the EU proposed to tighten its climate regulations in 2021.

Write to Matthew Dalton at [email protected]

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