Researchers suggest that implementing a border tax on carbon dioxide can provide a significant opportunity to combat climate change.

CO tax2 Emissions from products entering the European Union provide unprecedented opportunities in the fight against global warming. This is the conclusion of research on which Leiden ecologist Hock Ward has collaborated. “A new world is opening up,” says Ward. “But success hinges on how we engage low- and middle-income countries.”

With a new border tax on CO2 (CBAM), the European Union wants to prevent countries from moving their industries to countries with less stringent climate policies. The European proposal is for a progressive tax on carbon dioxide2 Emissions from products entering the EU from 2025. Politicians agree that this mechanism should be put in place, but the exact implementation is still being debated.

Leiden environmental economist Hoke Ward and three international colleagues investigated potential applications for a border tax. In Nature Communications Earth & Environment, they share their findings. “Our starting point is the flow of goods into and out of a country,” says Ward. “Everything you import and export has a carbon footprint. This provides opportunities to exert influence.”

CBAM (Carbon Limits Adjustment Mechanism) is a branch of the European Emissions Trading Scheme (EU-ETS). The idea of ​​CBAM and a carbon border tax is that companies are less likely to move production outside the EU if imports are subject to the same carbon price as domestic production.

Border tax probability is greater than expected

Ward, together with colleagues Timothy Bovels and Leonie Wiens (Potsdam Institute for Climate Impact) and Michael Jacob (Environmental Institute), concluded that the potential for CBAM is enormous. Many times greater than European policymakers themselves realize. “If we were to implement the border tax in its least ambitious form, it would actually affect about 83 megatons of carbon dioxide.2 (Based on 2016 figures),” says Wiens, “in this case, it’s mainly about direct emissions from imported steel, aluminum and cement. ”

The study showed that this is only a small part of the potential. The EU could expand the scope of CBAM to the point where it covers the direct and indirect carbon footprint of all goods arriving in the EU. In such a scenario, the mechanism would cover up to 1,558 megatons of carbon dioxide2Scientists argue. In other words: twenty times more than the least ambitious scenario.

Is this fair for low-income countries?

The prerequisite is that CBAM be applied carefully, otherwise low- and middle-income countries will be disproportionately affected. Says first author Beaufils, “Many of these countries have relatively small domestic markets. They produce a significant portion of their own carbon dioxide.”2 Emissions in the production of goods destined for the European Union. As a result, they are getting hit hard by CBAM.”

Eliminating the tax for some of these vulnerable countries may be a solution. But this does not emerge from the study as the best approach. It would be carte blanche to continue emitting a lot of carbon dioxide2.

So Ward and his colleagues put forward an alternative: cleverly reusing the revenue from the CO2 border tax. The EU could invest those funds to help precisely those low- and middle-income countries develop clean industries and deal with the damage caused by climate change. According to the researchers, the countries most affected by the climate crisis, especially in Africa, Southeast Asia and Latin America, should receive the largest share of the proceeds.

According to Ward, if we scale CBAM and use tax returns smartly, the mechanism could really become a game-changer. “Especially if other major economies, such as the United States or China, follow Europe’s lead and come up with similar regulations.”