Steel produced outside the European Union will be subject to new import tariff
Yusuf Aslan / Alami
So far, countries that lag behind others in reducing carbon emissions have not faced any negative consequences other than higher energy costs. All international climate agreements are essentially voluntary. But finally the situation will change. On January 1, the European Union will begin levying a carbon tariff on imported goods that effectively penalizes climate laggards. This is the first tariff to be introduced anywhere in the world.
Needless to say, the countries that will be forced to pay carbon taxes are not happy about this. Tensions were rising ahead of the start EU carbon border tariffor whatever it's called carbon boundary adjustment mechanism. Trade disputes will likely continue, but the tax will remain – and this is the first of many, says Ellie Belton at the climate think tank E3G.
“I think we can expect to see carbon adjustment mechanisms around the world,” Belton says. The UK plans to introduce it in 2027, while Australia, Canada and Taiwan are also considering it.
The EU border carbon tax is essentially an extension of the carbon pricing system. Since 2005, EU industries that emit a lot of carbon dioxide have had to pay for incentives under the Emissions Trading Scheme. The scheme is being expanded to cover more emission sources and the current price is around €76 per tonne of CO2.
This means that, say, steel producers in the EU have higher costs than producers in countries without carbon prices. The idea behind the adjustment mechanism is to restore a level playing field. In other words, the border tariff is set according to the EU's internal carbon price.
For steel from countries that already have carbon prices, the EU will only charge for the difference between prices. In addition to steel, the border tax will mainly apply to iron, aluminum, cement, fertilizers, hydrogen and electricity.
The immediate goal is to ensure that heavy industry does not simply move to other countries where it will not be punished for polluting the environment, a phenomenon known as carbon leakage. “The EU has made it very clear that it will not make any exceptions because, essentially, then you will create a pollution zone where dirtier production will move,” Belton says.
In addition, the policy aims to help limit global warming by effectively forcing other countries to do more reduce carbon emissions. According to Belton, it's already working. Some countries, including Brazil and Türkiye, are introducing their own carbon pricing schemes precisely because of the EU's border carbon tax.
The EU's decision to implement a carbon adjustment mechanism was finalized in 2023, and a pilot scheme began in October 2023 under which companies responsible for the charges were required to file declarations. Firms must start paying on January 1, but the fees are phased in and the full amount won't come into effect until 2034.
Companies in the UK are not expected to have to pay tax due to the country's plan. introduce your border tax in 2027. Negotiations are underway to make the UK scheme compatible with the EU scheme.
The ideal situation would be for all countries that introduce carbon adjustment mechanisms. accept the same system. This will increase their economic influence, meaning they will have more power to force others to take action. It will also facilitate trade within a single tariff bloc and reduce administrative costs for those exporting to the bloc. Unfortunately, that's unlikely, Belton says, and it looks like there will be a hodgepodge of different carbon pricing systems around the world.
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