Rising Global Carbon Pricing Sparks Trade Tensions and Criticism of EU Policies
The Editorial Board of the FT writes, the WTO said that globally there were 78 different carbon pricing and taxation mechanisms. They cover close to 25% of intl emissions, up from just 5% in 2010. This expansion of carbon pricing policies is welcome, but as more nations place a price on emissions, whether through taxes, trading schemes or indirectly via regulation, global trading tensions are also rising.
The EU’s carbon border adjustment mechanism, launched last year, is a case in point. Eventually it will require exporters to the bloc, who pay lower or no carbon prices at home, to pay a levy linked to the EU’s carbon price. The idea is to level the playing field for European manufacturers that pay the ETS.
But it’s already triggering complaints from trading partners in particular, that it burdens poorer nations with additional costs and administration. Countries could levy equivalent carbon taxes at home, to avoid the border charges, but they struggle to do so politically, or think it is unfair they should have to.
The WTO says the answer is a global carbon price. That is logical. Aligning carbon price regimes would reduce trade frictions, and alleviate concerns around arbitrage, where heavy emitters move to areas with lower prices.
More gov’ts should realise that hesitancy over carbon pricing is increasingly futile. The world is shifting away from fossil fuels, and green subsidies are expensive. Politicians can build support at home by using revenues from carbon taxes to cushion their impact, reduce debt, or raise public investment. Income from carbon pricing schemes globally surpassed $100bn last year, a record.
As more countries adopt their own carbon pricing, trade distortions and threats to competitiveness will ease. Indeed, the potential additional cost of trading with the EU, has jolted others into action. Given its prominence in global trade, expanding the bloc’s CBAM to more industries, will in turn help widen the scope of carbon pricing elsewhere. The US is now exploring carbon pricing on its imports, too.
Our Take 1: We’ve outlined in the past a limited, but positive, role carbon taxes could play in trying to best limit emissions. But there is no way, that we can see, the kind of carbon global tax the Board supports is going to survive the next global recession or multinational military conflict…. either or both of which could materialize in the next few years. It’s a pipe dream.
Our Take 2: The FT Board has been living in fantasyland for a number of years now. As far as we can tell, they simply don’t understand how the world works, the realities of it. From DEI to energy demand to climate change to the threats facing the West, democracy and freedom itself, they repeatedly appear oblivious. Our guess is they’ll never grasp that few care what Europe thinks or does anymore, that it’s increasingly irrelevant on the world stage, and is driving its economy and future into the ditch.
Author: Doug Sheridan, Managing Director & Founder, EnergyPoint Research, Inc., LinkedIn, September 22, 2024
