What’s a “carbon border adjustment mechanism,” and what does it mean for U.S. exports?
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European Union officials announced a plan Tuesday to impose a tax on imports based on the greenhouse gases emitted in making them. It’s called a carbon border adjustment mechanism, and it would be the world’s first tax on the carbon content of imported goods.
It’s sure to have implications for international trade — especially for countries that don’t have a set price for carbon emissions, like the U.S.
The carbon border adjustment mechanism, essentially a tariff, would initially apply to the most energy-intensive products. “Iron and steel and cement and aluminum and fertilizer,” said Noah Kaufman, an economist at Columbia University’s Center on Global Energy Policy.
Europe already has a carbon-pricing system to offset the emissions linked to manufacturing products, he said. So countries there want to level the playing field.
“If you’re charging a carbon price on stuff produced at home, you want to charge the same carbon price on things that you import,” said Roberton Williams, a professor of environmental economics at the University of Maryland.
Ultimately, this discourages the importing of cheaper, energy-intensive goods from places like China and the U.S. because firms in those countries will be hit with this new tariff.
The European Union is trying to set up a sort of climate club, per Shi-Ling Hsu, who teaches environmental law at Florida State University.
“If you could set up this club of free trade, where, in order to get in, you’ve got to have some sort of a carbon price, then that flips those incentives around to create some impetus within a country to say, ‘Hey, let’s get a carbon price so we can get in on this club,’” Hsu said.
This new precedent will likely force industry leaders and policymakers to talk about establishing a carbon price in the U.S. — even if they’re against it, he said.
“I suspect the U.S. will push back fairly hard, or at least industries will push back hard,” said Tom Lyon, faculty director of the Erb Institute for Global Sustainable Enterprise at the University of Michigan.
That pushback will likely come in the form of lobbying and political contributions to maintain the status quo, he said.
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