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Europe Imposes First-Ever Climate Tax On Imported Goods

The European Parliament finalized legislation Tuesday that will impose taxes on imports based on the greenhouse gas emissions made during their production, despite the objections raised by companies in the U.S. and China.

The European Union’s (E.U.) Carbon Border Adjustment Mechanism (CBAM) would first take effect in 2026, and first cover emissions from companies producing iron, steel, cement, aluminum, fertilisers, electricity and hydrogen, according to the European Parliament. The taxes have been criticized by firms in the U.S., who are concerned about unnecessary regulation and red tape, and firms in China and the developing world, who use less green sources of energy than competitors in the U.S. and E.U., according to the Wall Street Journal.

The CBAM would help prevent “climate leakage,” where an E.U.-based company could offload carbon emitting processes to countries with less stringent climate rules, according to the European Commission. The E.U. hopes that the tax will encourage a “careful, predictable and proportionate transition for E.U. and non-E.U. businesses.”

The tax will require affected companies to begin reporting emissions in October, both those emitted directly by the relevant manufacturing processes and those emitted indirectly by the electricity generators powering those processes, the WSJ reported. The CBAM will require companies to pay for allowances in order to comply with emissions standards, the European Parliament reported.

The E.U. will also begin to phase out free emissions allowances to European manufacturers in 2026 and conclude the process by 2034, mirroring the timeline of the CBAM, the WSJ reported. Under these rules, both importers and European firms will pay the same price per ton of carbon emissions.

The E.U. has recently been taking steps to revitalize its manufacturing sector and boost its ability to compete with the U.S. and China. In March, the European Commission introduced legislation that would provide subsidies comparable to President Joe Biden’s signature climate law, the Inflation Reduction Act, and promote European mining efforts.

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