Classic supply and demand graph, showing the impact on quantity of a tax driven rise in price per unit. In this case quantity is assumed to be a proxy for economic activity.

EU Global Carbon Border Tax to Hit US Companies

Essay by Eric Worrall

Trade war anyone? The EU is trying to dictate carbon policy to the world once again. But this latest tax the world initiative is overshadowed by the EU’s humiliating 2012 failure to tax US airlines.

More fights ahead for EU carbon border tax

EU negotiators struck a preliminary deal on a carbon border tax, but a final agreement hinges on talks this weekend.


DECEMBER 13, 2022 5:36 PM CET

The EU’s first-of-its-kind carbon border levy designed to shield its industries from rivals in countries with lower CO2 pricing is almost a done deal, following talks that ended at 5 a.m. on Tuesday.

It’s a key part of the EU’s Fit for 55 program that aims to cut CO2 emissions by 55 percent by the end of the decade and the Green Deal that plans for the bloc to be climate neutral by 2050.

But there’s still a few key aspects of the Carbon Border Adjustment Mechanism (CBAM) to iron out in another round of talks this weekend.

The idea is that producers importing carbon-intensive products into the bloc will have to buy permits to account for the difference between their domestic carbon price and the price being paid by EU producers. A ton of carbon on the EU’s Emissions Trading System (ETS) currently costs just over €87; other countries like the U.S. have no national carbon price. 

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Will President Biden reject this latest European effort to squeeze money from American companies?

President Obama was responsible for the failure of the 2012 EU global carbon tax initiative. Obama forced the EU to back down on taxing US airlines operating in European airspace. But in my opinion Biden’s presidency has been marked by weakness and poor decision making, so there is a real risk he will roll over for European climate demands.

The European carbon border tax initiative will fail, the only question is how much economic damage will accrue before the scheme is cancelled.

Not only are the planned export border rebates an invitation to fraudsters, even if the EU succeeds in convincing the rest of the world to comply without trade war retaliation, EU businesses will still be at a substantial disadvantage to non-EU businesses. A rebate on the price of the final export product does not compensate for the dead money losses of a supply chain whose costs have been inflated by European carbon taxes.

Anyone who has ever run a business would spot this disadvantage and loss immediately. But I doubt most of the people who run the EU, who had input into designing this tax and rebate scheme, have any idea what dead money is, let alone an appreciation of the impact of inflated supply chain costs on business competitiveness.

Many modern Europeans tend to look down on and sneer at British and US laissez faire capitalist ideas, which is kind of funny, given laissez faire is a French phrase, popularised by free market supporting 18th century French philosophers. Ignorance or disdain for capitalist economics appears to almost be a badge of honour amongst today’s European leaders – which in my opinion goes a long way towards explaining Europe’s current energy crisis, and Europe’s long term economic decline.

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Tom Halla
December 14, 2022 6:14 pm

Brussels and many individual EU governments are devotees of the climate cult. Science does not enter into it, as the devotees are seemingly immune to evidence.
Much the same is true of socialists. Central planning is a favorite tool of bureaucrats, who act as if changing the name of the policy will result in different outcomes. As socialism eliminates real price information, the outcome can easily be lied about.

Bryan A
Reply to  Tom Halla
December 14, 2022 7:32 pm

The time has come to look at what benefit selling to or buying from the EU brings to nations facing their Carbon Taxation.
Q1) Do we really need to produce the goods sold to the EU in quantities necessary to maintain their supply?
Q2a) Do we really need to buy the goods produced in the EU?
Q2b) Can those goods be manufactured here instead?

B Zipperer
Reply to  Bryan A
December 16, 2022 6:16 am

Good questions.
Q2a) The only company that comes to mind is ASML, where we [and TSMC, Samsung. etc] get the photolithography machines for semiconductors. Q2b) – no.
Boeing can make what Airbus does, but then we have a monopoly by a company that is poorly run [see 737 Max debacle].

Reply to  Tom Halla
December 15, 2022 1:51 am

They are devotees of marxist thinking absorbed on university campuses and supported by post war increases in productivity and standards of living.

Rick C
December 14, 2022 6:55 pm

No matter what you call a tax on goods it is ultimately paid by the consumer. No supplier is going to pay the tax on his product and thus lower their profit. If increasing the price to cover the tax makes their product non-c9mpetative, they’ll withdraw from the market – that’s what protectionist taxes and tariffs are supposed to do. The consumer always loses.

Reply to  Rick C
December 14, 2022 7:04 pm

You know, that fact is so obvious, if anyone had any clue about how a business operates, it should be self-evident. Not so with today’s generation of “students” in my experience.

Kevin Kilty
Reply to  Rick C
December 15, 2022 7:22 am

No matter what you call a tax on goods it is ultimately paid by the consumer.

It is paid by someone, that is for sure, but not always by the consumer of the good in question. Sometimes it is paid in lost employment or wage raises by workers, sometimes by suppliers, who in turn pass it on to their employees and so forth. It represents an opportunity cost which is complicated to trace through an economy.

Scarecrow Repair
Reply to  Kevin Kilty
December 15, 2022 9:38 am

All business income comes from customers, ultimately. Everything else is hand waving.

Citizen Smith
Reply to  Rick C
December 15, 2022 9:01 am

That is what is so phony about Biden’s tax increase where “it will not affect anyone making less than $400k”. Government Overlords extorting/extracting money out of the private sector will affect everyone in the economy which eventually includes almost everybody on planet earth. And it doesn’t matter what they call it. A tax is a tax to be spent on things like windmills, sex change operations and maternity flight suits. Defund DC.

December 14, 2022 6:59 pm

“Will President Biden reject this latest European effort to squeeze money from American companies?”. He is obviously, not capable of even understanding the question. As with all decisions, his “handlers” will. They’re zealots, and so, no.

another ian
Reply to  eck
December 15, 2022 12:19 am

Somewhat O/T but how do you reckon he’d go in this?

Next on ChatGPT

Bryan A
Reply to  another ian
December 15, 2022 5:28 am

Is a man without a brain still a man or just an empty suited sock puppet Biden his time?

Reply to  eck
December 15, 2022 6:19 am

If you voted for Biden, you get exactly what you were looking for, I.e., a good screwing over by the Euro folks

December 14, 2022 7:01 pm

designed to shield its industries from rivals in countries with lower CO2 pricing“.

China? Good luck with that one.

Dave Andrews
Reply to  Mike Jonas
December 15, 2022 7:10 am

A number of EU companies are already relocating to China because of its cheaper energy. Does the EU want to relocate all its major multi nationals?

December 14, 2022 7:47 pm

It might well fail but the EU czars won’t see that as a reason to withdraw the carbon tax … socialista don’t think logically.

Philip CM
December 14, 2022 8:10 pm

More evidence of the tyranny of the regulatory Bureaucrat driven cult like by fraudulent science and perhaps worse, the fraudulent morality of social justice.

Rod Evans
December 15, 2022 12:18 am

Taxation is introduced for one of two reasons.

  1. The Tax raising authority needs funds to fund/operate its agenda.
  2. To influence the tax payers into a desired/preferred behaviour.

There is no other justification for raising funds by the state.
With those basic principles in mind. We can clearly see the state i.e. the EU in this case, is clearly signalling, the tax being raised is to influence behaviour away from CO2 emitting energy based systems.
That leaves an unanswered question. What will they do with the revenue from the carbon tax?
The tax is not being raised to fund the bureaucracy, per se. It is being introduced to deter consumption of high carbon(sic) production. Or in truth, all production.
Remember the Green (renewable) energy advocates keep telling us, renewable energy is the lowest cost option. If that were the case, why then, does the state consider it needs to influence customers behaviour? The obvious ‘cheap’ renewable energy option, would be first choice by users, it would be in such demand, governments wouldn’t need to involve themselves.
The well proven human spending behaviour and the markets would automatically drive renewable energy systems into prominence and fossil fuels would decline.
That is not happening, for again obvious reasons.
The carbon tax is only being raised, so the state can fund subsidies to the green energy sector just to keep it alive. The money raised will be a charge on efficient production needed to pay for Green energy inefficiency and unreliability mandated by state diktat.
And on it goes.

The Real Engineer
Reply to  Rod Evans
December 15, 2022 1:01 am

This will probably die as the HUGE fraud case now in the EU will show that taxes do not go for the common good of the citizens, but to line a few pockets. People in the EU will find that Lithium has an enormous Carbon footprint, and the tax will make the “all electric” dream die off. They will be priced out of travel, and have no market for any goods manufactured in the EU, due to price. Bring it on!

Bryan A
Reply to  The Real Engineer
December 15, 2022 5:35 am

They will also discover that Lithium has an affordably limited supply incapable of supplying billions of first generation EVs needed to replace the current FF fleet AND the quantity of Massive Grid Scale back-up batteries that ruinables require to retain effectiveness

Reply to  Bryan A
December 15, 2022 10:04 am

I don’t understand why they are using lithium batteries for grid storage.
I’ve always understood that the reason why they were chosen for transportation purposes was because of weight.
Weight shouldn’t be a factor for grid scale? Unless they are worried that so many are going to be needed that it might create local gravitational anomalies.

Bryan A
Reply to  MarkW
December 15, 2022 1:18 pm

This is why they aren’t going to install any batteries in Guam 😉

Rich Davis
Reply to  Bryan A
December 15, 2022 6:08 pm

Tut tut Bryan. They have figured that out in the interim.

You install bird choppers in an opposing pattern…east, west, north, south…like installing lug bolts on a car tire. That way, the island doesn’t tip over, like it would if you were just putting icky military stuff on one side.

Joe Crawford
Reply to  Bryan A
December 18, 2022 2:07 pm

Yea, it might flip over :<)

michael hart
December 15, 2022 2:21 am

How on earth does the EU know what a company in China pays for its carbon fuels, especially if they lie about it?

Also, they may well just be buying it from a cheaper source. What right does the EU have to demand they pay more?

Next up, this could be utterly crippling for the exports from the poorest nations.

Last edited 3 months ago by michael hart
Bryan A
Reply to  michael hart
December 15, 2022 5:37 am

Exports to Europe will cease

Reply to  Bryan A
December 15, 2022 5:58 am

As will exports from the EU – not Europe note – as they will be too expensive.

December 15, 2022 8:17 am

Pull US the military and defense support from Europe. Then let’s see if they can be reasonable.

December 15, 2022 8:50 am

The EU institution is too busy dodging the recent corruption allegations to understand carbon

Each person in that institute of great incompetence is a son or daughter of that great carbon molecule – they would simply not exist without it – trying to tax it, is as perverse as claiming CO2 is the driver of climate change and the harbinger of doom for humanity

Politicians are always in it for themselves – money & power are always their drivers – take everything they and their puppets say with a healthy pinch of sceptical salt, that way, you’ll never be disappointed and conned

Captain Climate
December 16, 2022 3:37 pm

The EU is a suicide pact.

John Boyce
December 18, 2022 12:19 pm

I know that economics and its abstract line diagrams can be difficult to comprehend to the uninitiated. But if you are going to use them, you need to use it correctly.

The graph you have drawn has the area labeled “carbon tax” incorrectly measured. The carbon tax per unit is the vertical distance between the two supply curves. That is, a carbon tax of $t per unit raises the cost of production by $t per unit. That is what causes the shift in the supply curves from the curve “supply” to the curve “supply + tax”.

What you have shown as the “carbon tax” is the amount of the price increase (over the quantity sold) that is due to the carbon tax. That is, you have show the proportion of the tax incidence that is borne by consumers. But part of the tax incidence is also borne by producers, in the form of lower prices received. With the carbon tax, the price producers receive drops to the price at the quantity consumed with the tax on the original supply curve, which is where the vertical line on the left side of the area titled “lost production” intersects the curve “supply”. The carbon tax revenues the government earns include the area shown as the carbon tax, plus the area not shown down to the original (untaxed) supply curve.

The image posted with this comment shows the correct graph. The initial (untaxed) price is p0; the initial quantity is Q0. The tax shifts the supply up by the amount of the carbon tax t. At the new equilibrium, the quantity is Qtax < Q0; consumers pay pc = pp + t > p0; while producers earn pp < p0.

This is Econ 101.

December 18, 2022 2:25 pm

Instead of trying to prove CO2 is not pollutant (hard), get them to explain what “renewable” means.

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