Is the new European Commission environmental policy a tool for good or a tax and tariff?

By Richard Pitts, Principal

Last week, the European Commission announced it aimed to be carbon neutral by 2050 and to reduce its greenhouse gas emissions by at least 55% from the levels we saw in 1990 by 2030. Immediately after the announcement and in the days since, the new emission targets have received a pretty negative response.

The mood from the shipping industry (which has been included for the first time in the carbon reduction plans) along with the automotive, airline and heavy industry sectors was negative with the plans being called “anti innovation” and “not possible to achieve” according to the FT. Companies are complaining that they are not now working with a competitively neutral roadmap and the new plans don’t encourage a global level playing field.

The plans are bold and feel unachievable. Take new vehicle manufacturing, where by 2035 the EU expect all vehicles off the production line to be zero emission. That’s just not that far away, and while tech advances have created strong innovation in this sector, zero emission vehicles are certainly for now out of the price range of the majority of people.

This leads on to the big question. Who exactly is going to pay the price if the carbon emission targets aren’t hit? The EU, like most jurisdictions, is hoping to start its post COVID 19 recovery and the new environmental strategy could easily be seen as an income earner as opposed to a strategy for good.

In an attempt to lock down carbon leakage, where EU based businesses import higher emission products rather than manufacturing them directly within the EU, the plan for the introduction of the first major climate import tariff is likely to have these importers up in arms. The Carbon Border Adjustment Mechanism would impose a levy on steel, concrete and fertiliser to name but a few examples. The levy will mirror the EU’s own carbon pricing rules, forcing imports to have a similar price as if they had been produced following EU legislation, effectively levelling the playing field. This approach could prompt real political dispute at the World Trade Organisation and with other jurisdictions if the measure is seen as an unjustifiable, discriminatory barrier to trade. There is potential for friction from the EU’s main allies. Countries like Turkey, Russia, Ukraine, Egypt and China will be immediately affected by the measure since they represent the biggest exporters of heavy industry goods. The Commission says it is conducting extensive bilateral discussions with these countries and hopes the EU levy will incentivise these partners to start to reduce emissions and adopt greener policies themselves. The recovery from the pandemic and the EU’s green transition ambitions is coming at a price. Brussels are expected to bank around €10 billion a year from the new levy’s.

There are fears that companies will pass new expenses onto the consumers and there will be disconnect between households as ability to transition to cleaner energy and products might not be possible for all. If or when the new levy’s trickle down to the consumer, it will be interesting to see how this plays out. The ‘Yellow Vest’ disputes back in 2018 originally started in reaction to a fuel tax and after the personal difficulties the pandemic brought to some, the idea of more pressure on wallets might be more than people want to bear.




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