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Europe Threatens Border Adjustment Tariff for Climate Laggards Like U.S.

In what Politico interprets as a lesson learned from Donald Trump’s trade wars, the European Union is threatening a carbon tariff on countries like the United States that refuse to step up and commit to getting their greenhouse gas emissions under control.

The strategy was an “active topic” during COP 25 in Madrid, the U.S.-based publication reports, and “some diplomats say it’s inevitable that governments will turn to trade barriers” in response to the climate crisis. “It’s not whether it’s going to happen—it’s going to happen,” said former U.S. Secretary of State John Kerry.

“By imposing tariffs on goods from the U.S. and other countries that lack tough climate policies, the Europeans would help their own industries avoid being handicapped by the EU’s greenhouse gas efforts,” Politico explains. “But if they hit the U.S., they would risk a worsening trade war with the Trump administration, which has already threatened hefty tariffs on goods such as French champagne and German autos over a range of competition disputes.”

The concern centres on the €25 (US$27.85) per tonne carbon tax the EU levies on major emitters like oil refineries, steelmakers, and paper producers. “Because other major economies such as the U.S. refuse to set a carbon price for their own industries, the EU’s approach risks making many European companies uncompetitive,” writes reporter Zack Colman. That prospect “has prompted calls for a ‘border adjustment’ tariff based on imports’ climate impact in their home countries.”

At the Madrid conference, Spanish Economics Minister Nadia Calviño Santamaría told media she wanted to see a carbon tariff “as soon as possible”, focused on any country that refused to abide by the terms of the 2015 Paris Agreement. “We need to ensure that climate policy does not create an unlevel playing field between those players which operate in jurisdictions which have higher standards and those that maybe do not,” she said.

A senior U.S. official attending the COP said tax issues “are of great concern to us”. While neither the White House nor the U.S. trade representative’s office replied to Politico’s request for comment, Senate Energy and Commerce Chair Lisa Murkowski (R-AK) said she hoped the EU would back down. “One would have thought we were all done with the escalation.”

European leaders like German Chancellor Angela Merkel said the continent should step carefully to avoid inflaming trade tensions. “Countries that have not expressed a similar commitment to climate protection as we have could consider this as a kind of protectionist measure,” she warned.

“I see explicitly the danger of talking about a carbon border tax. I don’t think that’s a good idea,” agreed Holger Lösch, deputy director general of the Federation of German Industries.

Other European leaders said climate laggards can avoid penalties by enacting their own strong climate policies. “If you take the same, or comparable, measures there will be no need to correct anything at the border,” said European Commission Executive Vice President Frans Timmermans. “If you don’t, then of course, at some point we will have to protect our industries.”

Dirk Forrister, executive director of the International Emissions Trading Association, said energy-intensive industries like aluminum, steel, and chemicals “are driving much of the discussion,” Politico writes. “Luxembourg-based ArcelorMittal, the world’s largest steelmaker, has for years called for a carbon levy, arguing that the EU’s emissions trading system puts homegrown businesses at a disadvantage against international rivals that don’t pay carbon fees.”

“The trade dimensions are getting more serious, and this is a logical, equal and opposite reaction to those concerns,” Forrister said. “As time moves on, if you aren’t getting that result [through the Paris deal], then you would expect these tariff questions to come up more and more.”

Politico identifies France as the leading proponent of a border adjustment tariff, with France and Spain persuading Germany to consider the idea after years of resistance.