Guest essay by Eric Worrall
The EU is once again attempting to impose a carbon tax on all imports, to stop “carbon leakage”, the loss of manufacturing or other businesses relocating to lower cost countries. But a few simple economic calculations demonstrate why the EU’s plan will not stop the ongoing haemorrhage of business activity.
Carbon Border Adjustment Mechanism: Questions and Answers
Why is the Commission proposing a Carbon Border Adjustment Mechanism?
The EU is at the forefront of international efforts to fight climate change. The European Green Deal sets out a clear path towards realising the EU’s ambitious target of a 55% reduction in carbon emissions compared to 1990 levels by 2030, and to become a climate-neutral continent by 2050.
The July 2021 package in support of the EU’s climate targets is an integral part of our strategy to achieve this, and will further seal the EU’s reputation as a global climate leader. As part of these efforts, the Carbon Border Adjustment Mechanism (CBAM) is a climate measure that should prevent the risk of carbon leakage and support the EU’s increased ambition on climate mitigation, while ensuring WTO compatibility.
Climate change is a global problem that needs global solutions. As we raise our own climate ambition and less stringent environmental and climate policies prevail in non-EU countries, there is a strong risk of so-called ‘carbon leakage’ – i.e. companies based in the EU could move carbon-intensive production abroad to take advantage of lax standards, or EU products could be replaced by more carbon-intensive imports. Such carbon leakage can shift emissions outside of Europe and therefore seriously undermine EU and global climate efforts. The CBAM will equalise the price of carbon between domestic products and imports and ensure that the EU’s climate objectives are not undermined by production relocating to countries with less ambitious policies.
…
Read more: https://ec.europa.eu/commission/presscorner/detail/en/qanda_21_3661
Why does this tax put an EU producer at a disadvantage?
Simple – selling to another EU entity is price competitive, so far, but selling outside the EU is impossibly expensive, because you are competing with other sellers who don’t pay EU carbon taxes. An exporter outside the EU has an advantage over a manufacturer inside the EU, even if they have to pay a carbon border adjustment.
What about if the EU tries to level the playing field for EU based exporters, and applies a tax credit to exports? This opens the door to massive global carbon carousel fraud.
Either the EU destroys their own exporters, in an attempt to protect their domestic industry, or they have a big firefight on their hands, trying to contain carbon carousel fraud, which will only get worse any time they try to ratchet up their carbon price.
What about the effect of carbon pricing on businesses inside the EU carbon tax zone?
Ever visited a shopping centre, and wondered why all the interesting shops are slowly replaced by clothes shops or other high turnover businesses? The reason is all those interesting shops are not profitable enough to pay the rent, and over time they are replaced by simpler, less interesting businesses – safe, boring, profitable, but still a contraction in the diversity of life choices available to consumers.
Pretty much the same thing would happen to domestic high carbon businesses afflicted by EU carbon pricing.
The EU at least in principle likely hopes that revenue from the carbon tax will drop to zero, as people discover low carbon or zero carbon alternatives to the high carbon goods they currently use such as alumina, or simply learn to live without.
But this is a huge gamble. The only reason for carbon leakage in the first place is because the carbon intensive goods targeted by the EU are difficult to replace with low carbon alternatives, and difficult to live without.
If a carbon intensive good is irreplaceable, continued dependency on that high carbon good will be an ongoing anchor dragging on the European economy.
Of course you could make an argument that the benefits the people of the EU receive from reduced CO2 emissions outweigh the costs, that one day our descendants will thank us for giving them the opportunity to experience cold weather. But this does not help consumers and businesses today.
In conclusion, the EU carbon border adjustment will do nothing to prevent carbon leakage. The EU does not control enough of the global economy to make it more than an inconvenience for multinationals. The only people the EU border carbon adjustment will hurt are people living in the EU, who will see their choices and opportunities contract.
Too complicated. Simple: Impoverish successful Western countries to supposedly spread the money around but in reality just make everyone equally poor when the money runs out to finance wealth redistribution.
I guess it could be summarized as follows:
1] Europeans will pay higher energy costs.
2] Europeans will pay higher goods costs due to the tariff.
3] Europeans will pay for the privilege of exporting their non-competitive products through government subsidies.
4] Without guaranteed subsidies European firms will be confined to European markets.
5] And then add on all of the foreseen & unforeseen knock-on effects.
All of which, will over a decade or two, relegate the EU to an uncompetitive economic backwater, similar to what happened in the United States, as it gradually off-shored it jobs and factories over the last 20+ years. (sigh)
The two have nothing in common. The myth that “off-shoring” destroys jobs is belied by the low unemployment before COVID that Obama tried to slow down, and that Trump took credit for, but was really just a typical comparative advantage scenario.
The concomitant myth of the trade deficit is easily disposed of once you realize that dollars out have to equal dollars in unless someone is literally burning them. The reported deficit is accounting cookbookery, using asymmetric figures to fool the willing and provide damned lies for politicians.
The libertarians say trade deficits don’t matter and point out that each of us has a trade deficit with with our grocery store. But don’t we have a trade surplus with our employer to sustain our trade deficit with the grocery store? How can you sustain an overall net trade deficit without chicanery?
Milton Friedman used to say they trade goods for our paper (debt). That is a good deal. Especially since our currency is not backed by anything, and neither is the debt.
So why would they do that?
Both those are correct. But most people have just one employer with one huge imbalance, and lots and lots of small imbalances in the other direction.
Dollars out have to equal dollars in. There is nothing mysterious except in the minds of those who ignore that.
The dollars that come in go largely to government debt which funds the big government the free-traders are supposedly opposed to. A lot also goes into real estate.
Thanks for the correction. A good example of not believing your eyes and trusting the government statistics, when one travels through such cities as Detroit, Cleveland and others that dot the mythical “Rust Belt”… verses areas such as Guangzhou, Shenzhen, Shanghai.
Hopefully, this argument is brought up in relation to EU Carbon Border Tax, which seems to be backed fear-mongers by who don’t understand the mythical nature of “off-shoring”.
And hopefully, Germany, Japan, South Korea, Taiwan, China and other counties that regularly run trade surpluses as a matter of policy will wise up and join those (like Namibia, Sudan and Ethiopia) who are aware of the “cookbookery” and run large deficits.
However, thankfully, one can always bury one’s head in the tomes of official economic statistics and the latest economic theories (MMT) as one travels through cities like Detroit, Islamabad and Istanbul to avoid any cognitive dissonance that might arise.
Meanwhile, we can all wait in suspense for the forthcoming US corporate media article, that will posit in five paragraphs (citing anonymous sources) how the new route to economic prosperity is to be obtained through de-industrialization and large trade deficits… and assure us that the projections are as solid as the disappearance of Arctic Ice Cap in the near (or past) future.
Didn’t the off-shoring take place during a period when trade barriers and tariffs were reduced?
A little too broad. Let’s rephrase it: wealthy Europeans will not notice any change to their living expenses. As usual the workers will be screwed and the poor white boy will be the one who suffers most.l
Carbon taxes are just another regressive tax in the literal sense of regressive, that is, charging the poor at a higher rate. Any scheme to kick back part of the tax is negated by the inherent inefficiency of government.
Governments worldwide want to be in charge of a larger percentage of the economy for more control, more revenue, more spending, and more influence. A feature seldom mentioned is that if businesses don’t cut emissions, they simply will pay penalties for the made-up-by-government carbon quotas. This feature has got to be Revenue Department dream…setting penalties using nebulous legislation is their specialty.
Carbon taxes, credits, border adjustment mechanisms, are just parts of the “bigger percentage” strategy that is using CO2 emissions as the parade leader. “Sin” taxes are always collected and spent by government, but get full support from people who “care”, while the money goes into general revenue.….don’t expect emissions or carbon taxes to go away any faster than liquor taxes. It’s really just another revenue source from an invented “industry”, and will be about as successful as prohibition was with alcohol….which seems to be zero alcoholism prevention with much product taxation……
The EU government hopes only to increase the size and inertia of the permanent bureaucracy while giving the impression of a transfer of wealth. They will say that this is a luxury tax, and indeed will seem to make some of the wealthy less so, but there will be more property taken from the non-government middle class, more carbon released ‘off the books’ as indulgences for fake green technology, an ever growing ruling class to administer the matching increase in regulation and planning, and a much reduced standard of living for the rest.
And the tax will never go away. It will just get larger per unit of “carbon” as the imports of “carbon”-including goods go down.
The more complicated the system, the easier it is to break or falsify the results.
And defraud.
The US Democrats are working on a $3.5 trillion budget bill that includes “carbon border adjustment tariffs” so the EU is not alone in this lunacy. This will be the so-called budget reconciliation bill that the Republicans cannot stop because it cannot be filibustered.
Economic chaos looms!
https://www.nytimes.com/2021/07/19/climate/democrats-border-carbon-tax.html
In a competitive situation your response should be driven by a deep understanding of what’s actually going on. Otherwise, you are likely to do things that are counterproductive. The problem often is that you often lose sight of what made you successful in the first place.
So, in that light, what did in the German camera industry? link
Given the ubiquity of really great cell phone cameras, why is there a camera industry at all?
Why is there a Swiss watch industry? The time on your cell phone is way more accurate than you practically need.
So given the unpredictable nature of markets, can we say that the reason European manufacturing has problems is just due to competition from countries that have poor environmental and labor laws? It may be true in some cases but if you think across the board trade barriers are the answer, you may help one or two industries at the expense of most of the others.
WTF is “a climate-neutral continent”???
Antarctica… 😉
Last time I checked the “climate-neutral continent”,
it was called ‘Incontinentia”.
Don’t think it is Antarctica.
🧐
cheers
Especially as parts of the continent aren’t in the EU.
we need to stop calling it ‘the’ eu. its not. its ‘an’ eu. there are plenty of others. anything that operates or exists in more than one european coutnry is an eu.
Rubbish. The European Union is an established legal entity and should be referred to as such because there is nothing else like it. The other European entities such as efta, EEA and UNECE are not unions of any sort but agreements.
The EU has a larger population than the USA and less social problems, a more developed infrastructure, 3 of the world’s largest economies and generally now is more prosperous than the USA.
About time you looked over your own garden, USA
https://statisticstimes.com/economy/united-states-vs-eu-economy.php
2019 per capita GDP: US States vs Other Places
2019 per capita GDP: US States vs Other Places
https://en.wikipedia.org/wiki/Comparison_between_U.S._states_and_sovereign_states_by_GDP_per_capita
Wait! Where are the UK, France and Germany? Right between Alabama and Mississippi!
Griff never lets facts get in the way of his opinions.
And it is even worse than the GDP per capita figures indicated since the cost of living is so much higher in Europe than the USA. Griff’s ignorance is amazing.
Trading Economics gives the GDP Per Cap PPP for US 60235.73 US dollars in 2020, GDP Per Cap PPP for EU 43681.04 US dollars in 2020.
Of course the GDP figures give no indication of genuine productivity, for instance Luxembourg produces nothing except regulations that are a net negative for the EU economy as a whole.
Actually Luxembourg offshores TAX exiles and con jobs like Paypal, Amazon with the accountancy and banking that goes with them.
Net added value destruction of anyone who tries to compete with them on an “even playing field” locally.
Very interesting statistics, David. It shows that the US has indeed a strong economy. However, it does not invalidate Griff’s main point, US has far more social problems than EU.
The problem, as I see it, is the extremely high economic inequalities in the US. Some hard working people are living from pacheck to paycheck, others are billionares with multiple luxury homes.
There was a time when most of us Europeans admired the US for their high living standard and good products. Several of my parents relatives moved to the US because the salaries were higher. Back in the 1950-ies an unskilled laborer could make twice as much in the US as in most of Europe, now it is the other way around.
Even unskilled laborers in Europe have reasonable salaries, they have the same public health service as rich people, and they have a yearly 5 weeks paid vacation.
I am not saying this to start a «we are better than you» quarrel. That is just childish.
I honestly love the US. You still have so many good qualities we do not find in much of in Europe, but something has gone wrong for the ordinary working class in the US.
/Jan
Indeed, the Democrats are about to do something equally stupid!
https://www.nytimes.com/2021/07/19/climate/democrats-border-carbon-tax.html
When it comes to climate stupidity the race between the EU and the Democrats is neck and neck.
About to try, not necessarily succeed. And they are incentivizing a massive turn about in the 2022 elections.
Yes the recon bill will be very interesting. Sanders wanted $6 trillion and they are down to $3.5 trillion. These bills were supposed to keep the Gov’t afloat, not float it. Where all this money will come from remains to be seen but that is a recon requirement, that all is paid for. Plus they only get one a year.
Curiouser and such.
Out of a an approximate $4 trillion Federal budget, itself in huge deficit, where does one get an extra $3.5 trillion that is ‘paid for?’ Since Congress writes the rules, anything is possible I suppose. I fear for the Republic in the face of such unopposed lies and profligacy.
griff,
your own country left EU, abandoned it.
For the same reason EU is doing now carbon tax.
To protect and secure the main capital, the workforce… and it’s value.
Nothing much to really do with climate… at this point,
unless considering the craze of climate policies over decades as the main platform and means of ripoff, which facilitated the very crisis faced now,
which is subjecting the entire workforce value to disaster, for not saying collapse,
like it happened in the red comi countries.
cheers
hi whiten,
Will you give me a hint in my game with you? Are you inside or outside the EU?
Mediterranean… as proper European as one could be… 🙂
But why must you persist in my precise origin?
cheers
Any mystery requires inquiry, whiten. Language is a hobby for me and I could not guess from the unusual form of some of your English phrases what native language was influencing them.
It’s my belief that language is the main forge of culture that binds us in our mindset in a way that we are mostly unaware, as the fish is not aware of the wetness of water. To know your native language is to know many things about you that are likely to be true. (Not to say certain of course, since we all have our individual identity).
Those who never learn another language are less likely to notice how their native language influences their thinking and beliefs and less likely to question or fully grasp the common assumptions of their own culture.
I suspect that you have many insights along those lines.
cheers
Yes, ofcourse you are right.
Language(s) and culture(s) are very much coupled in their evolution.
Yes, I will not argue your belief. 🙂
It is rational and reasonable, as far as I can tell.
I know my English is not rich or polished.
And I have almost no editing skills.
Plato’s cave, is a fascinating ‘story’.
It is a story of education and exploration of knowledge.
A proper expected response, from you, may oblige me to tell you where I am from.
🤔
The shadows on the wall are like seeing through a glass darkly. Also like the parable of the elephant and the blind men.
Πολύ καλά, υποθέτω! Το όνομά σας είναι Ασπρίζω?
Wow, an interesting handshake.
What about it! Dang.
cheers
I think that means that my guess was correct? Or that my Greek stolen from.Google is a joke!
If my guess was right, what gave it away was Plato and an earlier discussion about Aesop’s fable that we inaccurately call the Ant and the Grasshopper where you correctly referred to the lazy one as a Cicada, combined with your clues of being in Europe, Mediterranean, and as properly European as you can get. I was slow to catch on, thinking you were Russian.
If I may say Whiten, it is far more impressive to me that you write deep thoughts imperfectly but without hesitation, like shadows on the cave wall, than the words of many of us that may sometimes be grammatically perfect. I never intended to offend when referring to it.
cheers!
Fair enough.🙂
Yes it was correct… the guess.
Both counts, valid, including the rhetorical part too… of your query.
But, but, but;
a giveaway it is a giveaway. 🤓
Wondering which one of us got the ‘genuine’ giveaway! 🤔
cheers
The EU has a larger population than the USA and less social problems, a more developed infrastructure, 3 of the world’s largest economies and generally now is more prosperous than the USA.
Take a look at your own back yard Griff, I remember what big towns in Wales were like on a bad night. And Bristol, just over the border in England, got its own chapter in Tony Thompson’s “Gangs – a Journey into the Heart of the British Underworld“.
One of the people I worked with in Cardiff, Wales was heavily involved in a charity which tried to help feral late teens and adults, the children of multi-generational drug addict parents and grandparents, people who made a career of staying on benefits and getting wasted.
These poor kids barely knew how to talk, let alone wash and dress themselves, or read and write. The charity had plenty of clients, the government programmes were not exactly closing the gap.
And those who did receive government “help” – we are all aware of the ongoing child rape gang scandals, in which timid British police in multiple jurisdictions avoid prosecuting gangs who ruthlessly exploit children in government “care”, because the people in those gangs were not white – the police don’t want to be accused of racism.
And then there is the British modern slavery epidemic, in which illegal immigrants are ruthlessly exploited, either forced to work in brothels if they are pretty, or beaten and imprisoned and forced to work in textile mills or dangerous jobs like cockling.
Medicins du Monde, who normally operate in war torn African hellholes, has operated a clinic in London since 1998.
So lets say I’m not sold on your rosy view of Europe as a place where social problems are under control.
Far from it Eric.
Europe is the place, the very birthplace of insanity of communism and fascism.
It is what it is.
In the ‘long’ time past Europe had the very best response to such a high insanity or ‘evil’.
In European terms, then, “bounties” going up for the ugly or whatever in those disgusting criminal unacceptable terms, did not ever include ‘live’ as an option ever.
Either it was ‘dead” or “very dead”.
The very history of EU then.
I am sure this very much confuses modern day weak or otherwise known as the safe places ‘man’…
but it is or was part of human history there and then ,
which better not be ignored or forgotten.
Yeah, I know, is a bit too much, isn’t it!
cheers
Eric,
Mention of “big towns in Wales on a bad night”and “Bristol,just over the border in England” reminded me of the wonderful post-war radio skit by Frank Muir and Denis Norden,in 1949, “Balham, Gateway to the South”.
It was a comedy sketch parodying a travel documentary eulogising the South London suburb of Balham.
It compared the area stuck in terrible post-war austerity to those exotic faraway locations depicted in cloying travelogues of the day.
As I recall, the voices in the skit included Peter Sellers (who reprised it with the Goons in 1958),plus a young Benny Hill and Michael Bentine.
According to a Census,there are some 570 slums in towns and cities in France so griff might appreciate the ability of the British to laugh in adversity all those years ago.
All is not coming up roses in the EU.
There’s a lot wrong with European cities, it is well past time the myth that somehow Europe is doing it right compared to the USA was put to rest. Europe maybe does a better job of denying the existence of no-go zones and horrific social problems, but anyone who looks behind the curtain can see the truth.
I was going to agree with Griff in one respect, general prosperity.
GDP measures the amount of income in the country, not the amount of money in the citizens’ pockets. The charts David presents make it look like Ireland is a very prosperous place and yet my experience with the Irish people doesn’t make me think they are particularly prosperous.
A better measure of general prosperity is median income. Half the population makes more than the median income and half makes less. Ireland doesn’t fare so well in terms of median income. There are clearly some huge piles of money in Ireland but they aren’t reflected in the general prosperity of the people.
So how does Europe stack up when you consider median income? Except for a couple of Scandinavian countries they’re all behind good ‘ole America.
Sorry Griff. No matter how I try, I still can’t find a way for you to be right.
Griff- Have you ever actually traveled to America ? Your statement about the EU generally being more prosperous than the US is laughable. I have been to 2/3 of the European countries and I am generally appalled at what I see. The houses are generally small and old. The food is ridiculously expensive (Portugal being a notable exception) and the cars people drive mostly look like small rat traps. The first thing people do when they move from the UK to Houston Tx (my home) is to buy a giant SUV and park it in the oversized garage at their enormous home and brag to me that their garage is bigger than their parents entire flat back in London. You should really get out more.
Taxing imports & subsidizing exports will likely violate WTO, even if you claim it to be “carbon tax” and “carbon equalization”.
Eric,
Please stop playing by their rules. They are talking about carbon dioxide, not carbon.
At a quick glance, it seems most of the EU’s imports come from China.
So the conversation goes something like this?
EU: You don’t have a carbon tax, we have to tax your exports
China: Why would we have a carbon tax, we are meeting our Paris commitments
EU: Ummm
I hear Depends helps a lot with “carbon leakage”.
The EU is becoming ever more irrelevant in terms of global trade and world GDP – in 40 years it’s dropped 50% as the RotW developed.
The EU’s population is 450 million which is dwarfed by India and China alone. The EU is going to become a backwater as other markets develop.
The other elephant in the room being ignored. If the EU succeeds in its Climate Fascism, its productive population will likely start heading for countries where their productiveness will be rewarded rather than punished – leaving the EU with only those looking for the EU’s generous handouts. “Venezuela with history” here the EU comes…
The real aim of the EU here is to get tax revenue for Brussels that only they can control. They don’t have the constitutional powers to do this, but no one seems to be stopping them. Be prepared for more EU exits.
A response of other countries to carbon border tax doesn’t have to be limited to physical goods. Why would anyone recognize the intellectual property of EU corporations if EU increases carbon taxes? Lots of countries have less intellectual property than EU, so not recognizing patents or trademarks from EU as a revenge for a carbon tax would be a good thing for their economy.