Page 7 - EurOil Week 22 2021

EurOil COMMENTARY EurOil

The EU’s Green Deal: Putting a

carbon price on imports

The EU’s journey to net zero threatens a carbon price war with its trading partners

EUROPE THE European Union unveiled its Green Deal European Investment Bank (EIB), to fund a
in December 2019 with European Commission Just Transition. The EU even plans to bend state
President Ursula von der Leyen referring to the aid rules to allow public support such for green
WHAT: plans as Europe’s “man on the moon moment”, projects.
The EU is expanding its stressing Brussels’ determination for Europe to In terms of cleaner tech, the EU will also
carbon tax programme become the world leader in reducing emissions earmark 35% of its €100bn 2021-2027 research
in order to meet its and combating climate change. budget for climate-friendly technologies.
ambitious climate goals. The headline target is to reach net-zero emis-
sions, alternatively called being climate neutral, Carbon Border Adjustment Mechanism
WHY: by 2050. However, there is one weakness to this green
This creates the risk of The first step to achieving this is to increase deal. While the EU is setting some of the world’s
carbon leakage, where the 2030 emissions reduction target to 55% of most stringent emissions reductions targets, and
EU companies become 1990 levels, up from the previous 40%. enforcing them with such tools as the EU Emis-
uncompetitive next to This metric means that UNFCCC’s COP26 sions Trading System (ETS), European compa-
those in third countries targets for restricting global warming to 1.5 nies are exposing themselves to competitions
that do not have to pay degrees by 2050 should be met. The European from non-EU companies that neither have to
tax. Parliament passed these targets into law in April pay for emissions credits, nor invest in reducing
2021. their CO2 output.
WHAT NEXT: EU Commission President Ursula Von der This risk, known as carbon leakage, would
The EU wants to apply Leyen has appointed Commissioner Frans Tim- make European industry uncompetitive with
its tax to imports to mermans to head up European Green Deal. countries with lax climate rules.
overcome this problem. All this would require €.8 trillion from the European Commission Executive Vice-Pres-
EU’s budget, with a further €1 trillion coming in ident Frans Timmermans, who is in charge of
private investment. the Green Deal, recently warned that the risk of
Put another way, for the EU to reach its goals carbon leakage “increases as the EU raises its cli-
set out in the deal, approximately €260bn per mate ambition above that of its trading partners.”
year of investment is going to be required. The Green Deal’s Carbon Border Adjust-
ment Mechanism (CBAM) aims to avoid this
Wider green deal by enforcing carbon tariffs that are equivalent to
While the central question is reducing emissions, EU ETS carbon prices on imports of certain raw
the whole green deal package covers virtually all materials from “less climate-ambitious coun-
areas of the European economy. tries,” which do not have carbon prices similar
This includes what the EU calls the circular to EU levels, Timmermans said.
economy, which involves boosting recycling and Russia, the US and Turkey’s polluting indus-
reducing raw material usage by industry. This trial sectors, such as steel and cement makers, do
will affect carbon-intensive industries such as not have to meet emissions caps or buy EU ETS
steel, cement and textiles. credits, currently priced at €50 per tonne.
Efforts to decarbonise steel are a major focus, This would mean that any emissions cut
with Brussels wanting to fast-track clean steel in the EU would in fact be exported, and total
made using hydrogen by 2030. global emissions would not fall.
The Green Deal also covers a large number of This could be done in two ways. Either the EU
parts of the sustainable economy, from housing buys steel or cement form Russia or Turkey, with
to transport, biodiversity, construction, technol- the emissions simply exported out of the EU, or
ogy, agriculture, chemicals and methane. EU steelmakers could relocate to neighbouring
The Green Deal also recognises that some countries, with the same result.
post-industrial regions will suffer excessively. The EU wants the CBAM, which should enter
The Just Transition mechanism aims to provide into force in 2023, to form the cornerstone of its
extra funding to specific regions ad sectors, such climate and trade policies.
as so-called rustbelt areas of Germany or Central
Europe. Threat
This would involve €100bn of EU cash, either And herein lies the greatest threat to carbon
from the existing regional budget or from the emitters from the EU’s trading partners.

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