[WAPO] The incoming European Commission president, Ursula von der Leyen, was elected on a promise to deliver a "European Green Deal." A key component of her agenda is a carbon border tax.What exactly is a carbon border tax, and what are its consequences for the global fight against climate change? This is what you need to know.
So what is a carbon border tax?
Slowing global climate change will require reducing carbon emissions from a wide variety of sources. To do that, some countries have introduced carbon pricing plans to make carbon use more expensive and help the economy transition to zero carbon emissions. A carbon pricing plan could take the form of a standard tax on carbon emissions or a cap-and-trade system.
But not all countries want to tackle climate change at all ‐ let alone set prices on emitting carbon. A carbon border tax, also known as a border carbon adjustment, imposes a fee on any product imported from a country without a carbon pricing plan. Hypothetically, the tax would adjust the price of the imported goods to be equal to those produced at home.
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Carbon border taxes could reduce global carbon emissions in three ways
First, these tax adjustments could solve the problem of carbon leakage ‐ when carbon-intensive industries such as heavy manufacturing move to countries that don’t regulate carbon emissions.
Second, they might help countries that want to lead on climate policy use their market power against those that don’t. Some observers hope that such taxes would encourage more countries to participate in global climate agreements. It might also help enforce these agreements by raising the cost of shirking on a deal.