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Trade rules emerge as weapon to fight climate change in Europe

Ewa Krukowska and Jonathan Stearns, Bloomberg News on

Published in News & Features

"Carbon border taxes have their merits, but are tough to sell politically," said Antoine Vagneur-Jones, an analyst at BloombergNEF in London. "Implementing new border tariffs could exacerbate protectionism and trade wars."

France has been leading the calls for such a European initiative, and von der Leyen owes her surprise nomination in July to fill the EU's most powerful post in large part to French President Emmanuel Macron. That helps explain the prominence she has given to the idea.

Timmermans, who will be responsible for crafting the proposal, has so far given little away on the details. Von der Leyen pledged ensuring compatibility with global open-market rules.

"As an economic giant, we have tremendous leverage in our trade relations," said Timmermans. "We can set global standards. We should use that leverage as best we can, combined with convincing arguments to show that at the end of the day, we can all be better off."

With global supply chains crossing multiple countries, designing a European carbon tariff will be nothing if not technically complex.

"Carbon taxes on imports are a significant risk," said Deirdre Cooper, who helps oversee clean investments at Investec Plc's asset management division. She says the measure would encourage share and bond investors to focus not only on a company's direct emissions, but the greenhouse gas it's indirectly responsible for.

 

Politically, the push risks opening a new source of international trade tensions, with Trump threatening to hit European automotive goods to retaliate against support for Airbus SE.

Among the unknowns are the industries and products that would be covered by the upcoming commission proposal. Von der Leyen said in July that "it will start with a number of selected sectors and be gradually extended."

Timmermans said the commission will need to take into account the relationship with the EU's existing carbon-leakage measures, which include handing free permits to emit carbon dioxide to mostly energy-intensive companies deemed at risk of moving their production out of Europe.

After a surge in the cost of CO2-permit prices in the EU cap-and-trade market over the past few years, replacing free allowances in the market with a carbon tariff may discourage businesses currently rallying behind the tax.

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