Policymakers in the European Union (EU) and the U.S. have separately introduced legislative plans to tax imported goods based on the greenhouse gases (GHG) emitted in their production. Though uncoordinated, both border carbon adjustment (BCA) proposals aim to curtail the offshoring of jobs and emissions to economies with less stringent environmental standards.
Labor unions and key industries on both sides of the Atlantic support such measures, as well as environmentalists who view BCAs as an enabling condition for meeting the global emissions reduction targets called for in the Paris Agreement. However, the EU and U.S. plans differ in ways that could complicate transatlantic cooperation, as well as muddle negotiations with China and large developing countries over the direction of climate and trade policy. This divergence could imperil the ability of both economies to achieve their common goals.
Divided, the EU and the U.S. lack the market power to persuade China and other emerging economies to reject carbon-intensive development pathways, including the expansion of coal-fired power generation. Individually, the EU and the U.S. account for 14 percent and 16 percent of worldwide imports, respectively. A harmonized transatlantic approach, however, would add up to at least a 30 percent global market share and would likely form the foundation of a broader carbon club of like-minded countries — a development that would create a de facto international carbon price.
Out of the two proposals, the U.S. plan, led by Sen. Chris CoonsChris Andrew CoonsDems punch back over GOP holdup of Biden SBA nominee Biden threatens more sanctions on Ethiopia, Eritrea over Tigray conflict Senate Democrats to Garland: 'It's time to end the federal death penalty' MORE(D-Del.) and Rep. Scott PetersScott H. PetersWHIP LIST: How House Democrats say they'll vote on infrastructure bill Drug companies on verge of sinking longtime Democratic priority Failed drug vote points to bigger challenges for Democrats MORE (D-Calif.), offers the most flexibility in transatlantic and broader international cooperation, including the possibility of a carbon club, because it is founded on climate policy ambition. Coons and Peters would have the U.S. waive the carbon fee on a country’s imports if that country did not impose a BCA on U.S. products and if the U.S. determined the foreign government enforced laws and regulations designed to limit or reduce GHG emissions that are at least as ambitious as the U.S.
The EU plan, on the other hand, has limited its ability to engage internationally: It would only grant a full waiver to countries with a carbon price that is linked to the EU’s Emissions Trading System, which would currently only benefit a small group of emitters like Norway and Switzerland. However, compared to the U.S. scheme, it is based on emissions performance, which would be more effective in reducing global emissions if adopted more broadly. Brussels would impose administrative costs on all foreign industry, outside of the EU’s limited exemption zone, and apply fees based on the carbon intensity of their products.
Both strategies have their advantages; there is a need for transatlantic dialogue and cooperation to develop a common position that takes the best from both proposals to achieve the global climate mitigation results desired. In this sense, there should be an alignment of interests between both economies, which are amongst the cleanest in the world in terms of manufacturing from a GHG life cycle perspective.
The U.S. needs to work with the EU to develop common approaches to carbon accounting. Imported fees on carbon pollution should be based on an objective formula that is independently verifiable as it relates to the carbon intensity of products. The U.S., for example, should not grant an exemption to China simply based on its promise to achieve net zero emissions by 2060 and adopt future regulations designed to achieve it.
On the other hand, the EU needs to embrace a more flexible view on how to exempt other nations, in the spirit of the U.S. proposal. Many countries are not in a position to adopt a price on carbon, because they are in different stages of GHG regulation. Instead of basing blanket exemptions on pricing carbon, the EU should credit decarbonization programs that are enforceable domestically, reportable and verifiable.
A transatlantic meeting of the minds is needed on how to merge climate and trade policy. Both sides of the Atlantic should work to leverage their combined market power, in coordination with other economies with similar climate mitigation goals, such as Canada, Japan and the Republic of Korea, to green global supply chains and encourage China to adopt policies that are consistent with the Paris Agreement. Moreover, forging a common path would help strengthen the security alliance between the U.S., the EU and their allies — a strategic objective that Washington and Brussels should both share and prioritize.
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Michael A. Mehling is the deputy director of the MIT Center for Energy and Environmental Policy Research and works on climate policy design and implementation on both sides of the Atlantic.