European Commission President flags carbon border tax if others fail to reduce emissions

January 28, 2020: Ursula von der Leyen, the new European Commission President, told business leaders last week that the EU was determined to meet its target of carbon neutrality by 2050, and if necessary would use carbon intensity taxes “to prevent the import of CO2 from abroad”. She said in a keynote speech at the World Economic Forum in Davos:

“It is not only a climate issue; it is also an issue of fairness. It is a matter of fairness towards our businesses and our workers. We will protect them from unfair competition. One way for doing so is the Carbon Border Adjustment Mechanism.”

EU Trade Commissioner Phil Hogan confirmed that the EU is doing a feasibility study in 2020 on the tax to ensure it would conform with WTO rules, and would need to devise a common system for measuring the carbon dioxide intensity of both domestic and imported products.

Von der Leyen, originally from the German conservative CDU party, committed to strong action on climate change, including through trade mechanisms, in her candidacy statement for the EC President’s position. The French government has also supported such proposals. European cross-party support for strong action against climate change contrasts with partisan divisions in both the US and Australia.

A European carbon intensity tax could impact on the EU-Australia Free Trade Agreement negotiations which are ongoing in 2020. The Morrison government’s emissions reduction targets are much lower than those of the EU and Australian products might be subject to the proposed tax.