This story was updated at 12:30 p.m. EDT.
The European Parliament postponed a vote today on parts of a sweeping climate package that includes an ambitious plan to tax the carbon content of imported goods.
The carbon border adjustment would be the first of its kind globally, and its implementation likely would send shock waves through the global economy. The idea has inspired similar proposals in other countries including the United States, where it’s drawn support from both Democrats and Republicans.
The delayed vote was caused by disagreements over a separate legislative proposal that offers free carbon allowances to industry. Lawmakers were split over when to end those benefits. Parliament will reschedule the votes as soon as possible, said Pascal Canfin, who chairs the environment committee overseeing negotiations on the climate legislation.
The border measure would place a carbon price on imported goods entering the European Union based on the amount of greenhouse gases emitted in their production. Industries in the bloc already pay a price for their pollution under the E.U. Emissions Trading System, and the border adjustment is seen as a way to ensure that carbon-intensive goods produced more cheaply elsewhere don’t gain an advantage in European markets.
Officials also see it as a way to encourage other countries to reduce their emissions.
“It’s the only tool we have to incentivize global climate action, and it’s historic because we are in fact extending our own emission trading system, our own CO2 legislation, to the rest of the world,” Mohammed Chahim, a Dutch progressive leading negotiations on the border adjustment in Parliament, said yesterday during a plenary debate.
Today’s scheduled vote is just one step in a lengthy negotiation process that likely will play out for months. But the outcome could signal the willingness of Parliament to move forward with a robust border adjustment, observers say.
“The more ambitious the outcome will be and the larger the majority … the more of a clear signal that is from
Parliament,” said Domien Vangenechten, a policy adviser at climate think tank E3G in Brussels.
There’s first-mover advantage at stake, too. E.U. leaders see the implementation of a carbon border adjustment as essential to the bloc’s status as a global pioneer on climate change policy.
“Yes, we are only responsible for 8 percent of global emissions, but the Chinese are copying our ETS system; the Americans are very interested in what we’re doing on [carbon border adjustment] and looking at whether they could have the same system,” Frans Timmermans, who is heading up the green transition for the European Commission, said yesterday at the end of parliamentary debates.
“Every time Europe ups the ante, our economy grows, our employment grows and the rest of the world follows our lead. Let it be the same here again,” he added.
A case in point: Sen. Sheldon Whitehouse, a Democrat from Rhode Island, introduced a bill yesterday that would create a carbon border adjustment mechanism with several similar features to the proposal under discussion in Europe.
The European Commission introduced the border adjustment proposal last July as part of a broad package of legislation aimed at helping the European Union meet its goal of slashing emissions by 55 percent by 2030 and reaching net zero by midcentury (Climatewire, July 15, 2021).
In March, the European Council voted on its position, highlighting the role the measure would play in preventing companies from moving their production to places with lax climate policies and encouraging partner countries to establish carbon pricing policies (Climatewire, March 16).
Last month, the European Parliament’s Committee on Environment, Public Health and Food Safety voted on amendments that would extend coverage of the border adjustment to organic chemicals, hydrogen and polymers in addition to the five sectors covered by the original proposal: iron and steel, cement, fertilizers, aluminum and electricity.
The committee also agreed to include indirect emissions from electricity used in manufacturing and phase out by 2030 the number of emissions allowances industries receive for free.
The text from the environment committee goes further than the initial proposal from the European Commission. But different factions in Parliament disagree on key issues, including which sectors should be covered, when indirect emissions should be included and how fast the full mechanism should roll out.
The parliamentary Committee on Industry, Research and Energy has argued for a more cautious approach.
“We don’t know if third countries will agree with us, if they will really pay what we ask them to pay, if the systems technically works. So we think we need some time for preparation,” said Peter Liese, a German member of Parliament who is heading up revisions to the E.U. Emissions Trading System for the European People’s Party, which backs the industry position.
Green groups say a border adjustment would serve as an alternative to free allowances, which strengthens its case as an environmental tool.
“What industry wants is more of a competitiveness tool,” Vangenechten said.
Amendments that would weaken some of the text the Environment Committee agreed upon have been tabled over the past week.
Vagenechten expects the outcome of the plenary vote to be less ambitious than what was agreed to last month. Parts of the proposal also are likely to change in the months ahead. The text that’s expected to be approved today will go through further rounds of negotiation to reconcile the differences in position between the European Council and Parliament, which traditionally has been more of a champion for climate action.
What’s unlikely to change is the message the measure sends to trading partners.
The carbon border adjustment mechanism “sends the economic signal, which is one way to incentivize trading partners to adopt more climate measures and adopt carbon pricing, but it also mainly sends a diplomatic signal, which is if you’re not doing your fair share, we won’t let you access our market anymore without paying an equivalent amount for your carbon,” Vagenechten said.
Other parts of the package up for a vote today include a proposal to extend the Emissions Trading System to buildings and transport, a social climate fund aimed at helping households most affected by the costs of the energy transition, and efforts to decarbonize road transportation by 2035.