An EU Carbon Border that works for the EU

APPLiA submitted its position to the Commission consultation on a possible EU Carbon Border Tax Mechanism (CBAM).

APPLiA submitted its position to the Commission consultation on a possible EU Carbon Border Tax Mechanism (CBAM). The measure has been promoted heavily in recent months as part of the European Green Deal. The tax, envisioned as a way to level the playing field and tackle “environmentally substandard goods” on European markets, in reality could risk increasing the very carbon leakage it is supposed to be reducing. 

Assuming that a Carbon Border Adjustment Mechanism (CBAM) can overcome stringent WTO rules on trade barriers, to be properly implemented it would need to measure the carbon emitted in the entire value chain of a product, including all its components, from raw material creation to electricity output occurring in production, until point of sale. Crucially, for proper implementation, the mechanism would need to extend a tax on the import of finished goods into the EU, rather than a simple tax on raw materials. 

“A tax only on raw materials coming into Europe would be devastating for European manufacturing”, said Paolo Falcioni, APPLiA’s Director General, representing the home appliance industry in Europe. “Without taxing finished goods, European products sold both in Europe and abroad would be more expensive than imported goods. Of course, this domino effect would start with a loss of European jobs as making us less competitive, and end with European manufacturers moving their production elsewhere.” he added.

The effects of such a scenario would not only be felt by European industry, but would also defeat the purpose of the tax, which was aimed at tackling carbon leakage. Imagine a manufacturing centre, faced with becoming uncompetitive due to increased taxes, leaving one region for another, where a carbon tax is not in place. This company would then easily circumvent the carbon regulation, selling its product back to Europe at a more competitive price, and undergoing less stringent regulations in the process. The final outcome would be an increase in global CO2 emissions, rather than the intended decrease (and, thus, carbon leakage).

The European Green Deal and Carbon Border Tax are a continental response to a global problem. Imposing regulation that has an impact on European manufacturers must be considered in the context of the global economy for all industry sectors and not only for the industry of raw materials. A holistic approach should be adopted by the Commission that does not risk ultimately increasing carbon emissions globally, and that does not damage the industries that are at the heart of the European economy’s post-Covid revival.