Is the EU’s Carbon Border Tax a good approach?

The EU’s Green Deal demonstrated strong climate ambition indeed. Nevertheless, it is far from being free of concerns and controversies, particularly considering its implications beyond domestic EU politics.

A controversial element is the Carbon Border Adjustment Mechanism (CBAM). This mechanism is intended to place a carbon price on imports of certain goods from outside the EU, in order to push EU partners to raise their climate ambition and reduce the risk of 'carbon leakage' (when businesses 'transfer production to countries with laxer emissions constraints'). CBAM, also described as Carbon Border Tax (CBT), goes way beyond the technicalities of enabling a global green growth towards imposing unilateral coercive border tax with 'much pain and little gain', as critics note both in Europe and abroad.

Since the EU’s Green Deal is clearly communicated as a 'new growth strategy' and the EU’s growth is embedded within a global post-COVID development agenda (with other countries also demanding growth), the Global Difference Principle (a western political philosophy concept which argues that inequalities are justified as long as they benefit the worst off) should be respected when growth and development are discussed. The EU carbon border tax could frustrate developing countries’ export trade, resulting in the EU’s so-called 'new growth' based on the economic frustration and disruption of developing countries as a result of green trade barriers. In that case, the EU could achieve the expected 'new growth' but, in failing to 'play a role as part of a plan to raise the expectations of the worst-off' in line with the Global Difference Principle, would lose its credibility of justice.

Further concerns about the Green Deal are particularly relevant to the carbon border tax. First of all, while the Green Deal Communication (which sets out the various elements of the Green Deal and its objectives) is framed in terms of continued EU support for the Paris Agreement, the CBAM seems to be at odds with the core of the Paris Agreement, namely the 'bottom-up' approach in which all countries declare their own ambitions through Intended Nationally Determined Contributions (INDCs). CBAM deviates from the self-determined contribution framework to an approach that features coercive pressures from some nations towards others. From a critical perspective, the EU assertion that imposing a CBT could encourage other countries to raise their decarbonisation ambition might result in a 'slippery slope', as it is not convincing that the CBT-driven result will be better than the INDC-driven counterfactual result. Besides, it may imply that a 'sovereignty-seeking' EU places little trust in the efforts of NDCs from other nations, not to mention that many academic researchers have questioned the so-called 'carbon leakage' that serves as the asserted reason for a CBT.

Second, the EU Green Deal is generally seen as the EU’s initiative to reclaim global climate governance leadership. Nevertheless, global leadership in the multilateral system must respect existing UN rules and norms. Analysts have raised two major concerns:

1. The CBT is understood by and large as a protectionist policy which is not yet compatible with World Trade Organization (WTO) legislation.
2. It violates the principle of 'common but differentiated responsibilities and respective capabilities' which is endorsed by the Paris Agreement and the UN Framework Convention on Climate Change (UNFCCC). Therefore, it is understood that if the EU wishes to take the lead in climate policy respecting WTO and UNFCCC principles, then the CBAM should only target developed countries.

A third concern is that the potential EU–USA alliance on CBT risks becoming a source of conflict on a global scale. In the EU’s New EU–US Agenda for Global Change, the EU proposes to re-establish a close and open transatlantic partnership. In the new agenda, the EU affirms the 'unique' nature of EU–US relations, arguing that if Europe and the US join forces, their global influence will be unmatched in terms of both total economic volume and technological innovation capacities. US–EU consensus on a carbon border tax may therefore become a new trade-protection tool for developed countries against developing countries. If most developing countries practise solidarity in rejecting the CBT, the world economy might split into parallel systems, namely a lower-carbon-intensity economic system (of developed countries) and a higher-carbon-intensity economic system (of developing countries).

There seem to be other obstacles in the way of the EU implementing the Green Deal. First, implementing the CBT faces many practical barriers, such as: 1) the difficulties and costs of carbon-footprint tracking and data access across the whole supply chain; 2) the risk of unjust treatment towards countries with heterogeneous carbon-tracing capacities; and 3) the possibility of causing trade deviation that bypasses decarbonisation paths. These are discussed by the Brussels-based think tank Bruegel and are well covered in international opinions and discussions. Second, it is observed that the Green Deal meets certain opposition from the Visegrad Group (Czech Republic, Hungary, Poland, Slovakia), and it is yet to be seen how the Just Transition Mechanism – the EU’s plan to ensure no one is left behind in the transition to a climate-neutral economy – works to harmonise the conflicts of interest within EU.

In conclusion, while the EU is taking climate leadership towards a net zero future, there is much to be deliberated on with regard to the Carbon Border Adjustment Mechanism in respecting multilateralism and global justice.

The above article is an excerpt from the discussion paper 'EU–China Green Partnership for Better Global Governance' authored by Yanzhu Zhang and published by Multinational Development Policy Dialogue Brussels.

Yanzhu Zhang (MPP 2015) is an alumnus of the Blavatnik School of Government where he was the recipient of a David H Pollock and Tomislav Zegarac Memorial Scholarship. He currently works at the Foreign Environmental Cooperation Center of the Ministry of Ecology and Environment of China, and previously worked at World Bank in Washington D.C. and UNIDO (headquarters) in Vienna. He is a German Chancellor Fellow (2021–2022). The views expressed in this blog post are purely personal.