EU Carbon Border Levy: A Recipe for Failure

Guest essay by Eric Worrall

If the upcoming COP26 Climate Conference in November fails to make progress towards a global carbon pricing scheme, the EU will impose a Carbon Border Levy. But there is no practical way to make such a levy work – an EU border carbon levy would be a choice between carbon carousel fraud or ruin for EU exporters.

Why the EU’s proposed carbon border levy is an important test for global action on climate change

January 29, 2021 1.39am AEDT
Neil Kellard

Dean, Professor in Finance, Essex Business School, University of Essex

The current price of an allowance to emit greenhouse gases is around €33 per tonne, a price already much higher than the average over the life of the ETS. However, to meet EU climate change targets, this price will need to be more like €40 by 2030 and close to €250 in 2050. Given the substantial costs this will impose on EU firms, either to pay for allowances or to invest in low carbon technologies, companies based outside the EU will have a hefty competitive advantage unless they face similar regulatory controls in their own countries.

This is why the European Commission, the EU’s executive branch, plans to present its carbon border levy in June 2021 as part of its Green Deal planning. Frans Timmermans, the first vice-president of the European Commission, recently stressed that:

“It’s a matter of survival of our industry. So, if others will not move in the same direction, we will have to protect the European Union against distortion of competition and against the risk of carbon leakage.”

Read more: https://theconversation.com/why-the-eus-proposed-carbon-border-levy-is-an-important-test-for-global-action-on-climate-change-154041

Why do I say a carbon levy would be a choice between carbon carousel fraud or ruin for exporters?

Professor Kellard only mentions the impact of the levy on imports to the EU. But what impact would the levy have on EU exports?

If EU manufacturers pay a massive carbon price on their inputs, they’re stuffed – they cannot compete against global producers who don’t pay the same carbon price.

What if the EU panics and attempts to provide a rebate for high carbon exports, to prevent the collapse of their export industry? In this scenario they open the door to carousel fraud.

Carousel fraud involves fraudulently altering the customs description of goods to take advantage of different tax and rebate schemes. Its a carousel because the same container of goods is repeatedly imported and exported. The only thing which changes is the customs declaration, which is completely fraudulent on at least one leg of the journey.

Even without the opportunities a carbon border levy would provide for criminals, a carbon border levy would do nothing to prevent carbon leakage, the departure of industries from the EU.

Unless the levy was prohibitively high, high enough to trigger a trade war, it would still make more sense to site the manufacturing centre outside the EU, to pay the border tax when exporting to the EU, but to keep costs down and remain competitive when exporting anywhere else.

But a professor of finance should know all this.

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marlene
January 30, 2021 10:07 am

“a global carbon pricing scheme” – How can this mean anything else but a way to put your money in their pockets for a scheme THEY created?  

markl
January 30, 2021 10:08 am

“Carbon” (misnamed) taxes have failed over and over. It’s the point where everyone opens up their wallets to give money for ….. well, the air we breath. People realize it’s just another reason to be taxed to pay for the social order envisioned by the Marxist cabal. Yellow vests anyone?

Notanacademic
Reply to  markl
January 31, 2021 12:53 pm

Or maybe brown shirts ?

Tom Halla
January 30, 2021 10:18 am

Just measuring the CO2 emissions for all the parts of a complex product, like a cellphone, would be difficult. As they are assembled from multiple assemblies produced in multiple places, determining and calculating the actual sources of the energy inputs for each component back to raw materials seems rather like arguments as to why a centrally planned economy cannot work at any efficiency.

Pauleta
Reply to  Tom Halla
January 30, 2021 11:50 am

Hey, another green job opportunity, isn’t that so?

Mike Lowe
January 30, 2021 10:20 am

Essex? Sounds more like the “University of East Anglia”! Mind, Essex is next door to East Anglia!

Brian BAKER
Reply to  Mike Lowe
February 1, 2021 12:07 pm

The University of Essex is a public research university in Essex, England. It was established in 1963, welcomed its first students in 1964  …….. Wiki do I have to go on further.

Ben Vorlich
January 30, 2021 10:33 am

This seems totally insane, why make life difficult for your own manufacturers by imposing an export tariff? If you’re going to impose a tariff on anything why not on manufactured goods imported into the EU based on per capita use of fossil fuels?

Not that I think that tariffs and trade barriers achieve much in the long term, given time people find a way round them

Mr.
January 30, 2021 10:34 am

Hope they don’t try that carousel subterfuge in Ireland.
McDonalds will be offering Big Macs there with a quarter pound all-sand patty.

Tom in Florida
Reply to  Mr.
January 30, 2021 3:15 pm

Mostly sawdust now so not much difference.

Rory Forbes
January 30, 2021 10:37 am

What do these people have against carbon? Are they against life? As long as skeptics allow themselves to use the politicized language of deception, initiated to have the exact effect it is having, truth is lost and the public loses. The war on CO2 has now become a war on all carbon. Once again the Left has purloined our language for a political goal. If you own the language, you own the argument.

Gordon A. Dressler
January 30, 2021 10:48 am

A quoted passage in the above article: ” . . . we will have to protect the European Union against distortion of competition and against the risk of carbon leakage.”

Ahhh . . . that dreaded “carbon leakage” . . . this must be the newest meme of the decade!

I take that to mean that the EU must have some inclination that no matter what they do—and most importantly no matter the cost to individuals in their respective countries—to reduce their “carbon emissions”, it will have almost no impact on the rise of human-originated CO2 in the global atmosphere due to overwhelming amount of CO2 emissions from China and India.

What? . . . did any of the EU bureaucrats actually believe that CO2 is not globally-mixed throughout the troposphere?

fred250
Reply to  Gordon A. Dressler
January 30, 2021 1:42 pm

They should protected themselves from “brain” leakage

Unfortunately for their countries….. that horse has bolted off into the night !

Tom in Florida
Reply to  Gordon A. Dressler
January 30, 2021 3:16 pm

What is “carbon leakage”? Depends.

Sweet Old Bob
Reply to  Tom in Florida
January 30, 2021 4:52 pm

We see what you did there ….
😉

Gordon A. Dressler
Reply to  Sweet Old Bob
January 31, 2021 9:48 am

There is a limit on what you can sequester where.

Notanacademic
Reply to  Tom in Florida
January 31, 2021 12:59 pm

I think it’s what we call unicorn farts oh no sorry that’s methane,my mistake

Dave Fair
Reply to  Gordon A. Dressler
January 30, 2021 7:05 pm

And to fight that dreaded “carbon leakage,” I just invented a new line of Depends.

Peta of Newark
January 30, 2021 11:06 am

Straight out of the Dead Parrot sketch innit
The EU being The Parrot.

Because that is what new taxes are all about, desperate attempts at life support for something that’s at Daeth’s Door

And what they’re doing in the name of Brexit, aided and abetted by a quite bankrupt UK Exchequer looking for money to pay for the sadomasochism that is Covid is quite frightening.
Vindictive, Ugly, Petty and Childish

I see it via bits of electronical stuff I get from China via ebay,
Prices have gone up by 25% to 50% for a lot of stuff, in the last 6 weeks
No shipping containers you see. Covid is stalling them at China and petty bureacracy sees them parked up in/on the North Sea for weeks on end
So they try to unload at Rotterdam and childishness goes off-the scale.
Beyond Facepalm – Shake head and wander away muttering

EU recently tried something quite similar to this carbon malarkey with Covid vaccine…
Quote:””NI First Minister Arlene Foster described the move as “an incredible act of hostility” by the EU.
From here

Panic stricken and desperate, it went wrong and they got their noses rubbed in it
Trouble is, panic stricken people can do you serious damage if you get too close, even before they have the mentally of the self-important school playground bully

interesting times are here & now

Ron Long
January 30, 2021 11:11 am

The fraud from the “caruosel fraud” is only one side of the scheme. The other side is utilizing the carbon tax for something that actually reduces the dreaded CO2 in the atmosphere. Something like paying some character in the Amazon Basin to not cut down anymore trees. Half the money goes to the Character, who cuts down trees anyway, and the other half is divided up amongst the bureaucrats as a j”commission”. And the whole scheme does nothing to interfere with the slowly advancing amount of CO2 in the atmosphere. I keep wanting to see a “Scopes Monkey Trial II” for the CAGW crowd to prove their contention, so maybe someone who pays the tax can file a claim?

Pat Swords
January 30, 2021 11:26 am

The EU has no option but to bring in such a mechanism to implement its net zero campaign. However, it is highly illegal with respect to WTO rules and is going to lead to an all out trade war. Regretfully the EU is in an echo chamber and already in breach of several aspects of international law, which is leading to tensions with its European neighbours, such as Norway and Switzerland. This is a complex and emerging area, but one of which is highly interesting and will eventually in my opinion lead to the demise and break-up of the EU. The recent book “The Polluter Pays, but to Whom, How Much and On What Basis – Science or the Cult of Witchcraft?” is available below and explains these issues in more detail:

https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12616-State-aid-for-environmental-protection-and-energy-revised-guidelines/F1293380

ResourceGuy
January 30, 2021 11:27 am

This is where the climate media consultants and climate psychologists come in. Instead of the old days of simply rewriting the scare phrases for communiques, the task is now to phrase the new mega tax as something else like maybe climate “thank yous” or “kerry ketchup” or “climate bitcoin”. It will be tested on media groups first like a movie screening audience. They will of course love it.

ResourceGuy
January 30, 2021 11:28 am

Border tax was the whole reason for the EU creation in the first place.

RelPerm
January 30, 2021 11:50 am

Carbon Tax – what happens to the money? Seems like a very regressive tax to the poor and middle class to enrich the ruling.

Oldseadog
January 30, 2021 12:04 pm

Another not-thought-through EU nonsense.

Many years ago I piloted a Dutch vessel and the Old Man, who owned the ship, was telling me that for two years he hauled a cargo of wheat all round the inland waterways of France, Belgium, The Netherlands, Luxemburg and Germany. Every time he crossed an EU border he got some kind of payment. This kept him and the ship going until the wheat lost so much condition that it was fit only for animal feed so he sold it for that.

He put his ship on the tramp market for a while because he had got fed up with just travelling on the inland waters, but said that when he got fed up with the North Sea he might give the same scam another go.

Seems to me that this “carbon border levy” idea will work just like that.

ResourceGuy
January 30, 2021 12:54 pm

Only radicals could consider a carbon tax levy while Italy’s economy and government falls and others to follow.

John Garrett
January 30, 2021 1:17 pm

Black market, here we come !!!

Just as “Nature” abhors a vacuum, the immutable laws of economics will always provide arbitrageurs to exploit price differentials.

fred250
January 30, 2021 1:36 pm

No “climate change™” in Glasgow since 1998

https://www.weather-research.com/articles/countdown-to-unfcc-cop26-glasgow

Dave Fair
Reply to  fred250
January 30, 2021 7:11 pm

The flatulence from COP26 will cause high-temperature explosions, though.

Rory Forbes
Reply to  fred250
January 30, 2021 8:57 pm

The shortest period to determine climate, when I was in school, was 60+ years and in some locations it was centuries. If that’s a more accurate measurement, then we’re unlikely to determine if the “climate” changed in Glasgow for another half century. That’s three more decades to establish a base line and a further couple of decades to determine if a change has taken place.

John the Econ
January 30, 2021 3:59 pm

This is the problem with systems designed by “the smart people”. Since they know they’re “the smart people”, they can’t conceive that there are always smarter people out there who will quickly find a way to exploit their creation.

Waza
January 30, 2021 4:12 pm

It is also to be noted that a key Marxist concept is to blame the “big whatever” and not the masses.
They want to hide the cost of the tax in the front end of the product.
Putting a tax at the retail end, say on your electricity bill would be far more efficient and have a better chance of making consumers use less power.
But it would provide the voter with a clear link that his financial loss was caused directly by the politicians.

Around the lunchroom at the office, you can’t complain about “big oil”.
You can only complain about the politicians, and you workmates will either agree or think “why does he just use less power”

Serge Wright
January 30, 2021 6:13 pm

Adding this import duty to prevent EU consumers from purchasing cheaper products from developing countries overseas is really just an acknowledgement that their green raw deal is a huge cost impost on everything. In an economy that is already teetering on the edge of the COVID debt cliff, this will be the kick that sends it over the edge. Bye Bye EU…

Dave Fair
Reply to  Serge Wright
January 30, 2021 7:14 pm

Without President Trump to blame for all international evils, the EU bureaucrats/politicians need to beware of enterprising ‘journalists’ looking for a new slop-pail.

Dave Fair
January 30, 2021 6:54 pm

Rant on: That is H2O coming out of the cooling towers, not CO2 as the sign implies. Rant off.

michael hart
January 30, 2021 9:10 pm

Remember when the EU announced a carbon tax on airlines? The Chinese government ordered Chinese companies to refuse any such payments and started rattling their sabres. The new tax was swiftly abandoned. I expect any similar attempts will meet with similar results, unless the Chinese see a simple way to evade it completely or make extra profits at the expense of European companies.

I also recall reading about when Chinese users/ makers of CFCs were payed money by Western nations to help destroy existing stocks of CFCs. Some canny entrepreneurs actually increased production so that they could get payed more for destroying more. It seems quite typical of a logical response to a crazy scheme just begging to be abused. Such things should not have been a surprise in the EU, of course, because the Common Agricultural Policy had for many years made similar plays possible for European farmers (or alleged farmers).

TomR
January 31, 2021 1:56 am

China has a lot of energy from hydro power plants, and from nuclear power plants. So the manufacturing done for EU markets can be done using such energy, and the producers will be able to provide necessary CO2-free certificates.

But the manufacturing for internal market, for India etc. – could be done using cheaper coal-based energy, thus making EU products noncompetitive on the fastest growing markets. This will also mean that Chinese will achieve economies of scale, not available to EU companies restricted to CO2-free manufacturing: Chinese will be able to do both CO2-free and CO2-enriching manufacturing.

ozspeaksup
January 31, 2021 3:47 am

who imports much from the eu anyway?
their prices are so damned high already for most stuff we can source at home or elsewhere

Oddgeir
February 1, 2021 12:59 am

“companies based outside the EU will have a hefty competitive advantage unless they face similar regulatory controls in their own countries.”

“It’s a matter of survival of our industry. So, if others will not move in the same direction, we will have to protect the European Union against distortion of competition and against the risk of carbon leakage.”

/

Except for the fact that such a distortion would have been created by the European Commission itself…

Any border tax would amount to taxing the European consumer AND production companies, as opposed to being beneficial to the “hefty competitive advantage” companies abroad.

Tax credits for European exports…. WTO rules, if they exist in Euro La-La lands, would quickly resolve the matter?

They won’t be getting anywhere with their moronic treaths.

Oddgeir

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