A strong step towards climate action in Europe

Europe has taken measures to reduce carbon emissions, and its efforts to combat climate change are accelerating.

Negotiations among the European Commission members resulted in tariff legislation for carbon-intensive products, such as cement imported by the European Union.

Transitional period

The transitional period begins with reporting in October 2023, while carbon certificates will be handed over to imports from January 2026.

The European Union aims to reduce greenhouse gas emissions by 55 per cent from the 1990 record level by 2030. To achieve this goal, the EU has relied on setting a maximum limit for the total amount of greenhouse gases that can be emitted by factories or institutions engaged in industrial production and chemical manufacturing.

The European Union aims to reduce greenhouse gas emissions by 55 percent from the 1990 record level by 2030.

The maximum limit is reduced over time so that the total emissions decrease. The current system will be completely phased out by 2034.

Free allocations

The EU’s primary mechanism for mitigating carbon leakage risks has been to pay certain companies free allocations. However, these allowances have many shortcomings from a climate perspective.

They do not provide any secondary benefits that contribute to increased revenue or applicability to imports.

The European Union is seeking to remedy the shortcomings of the free allowance system by replacing it with commercial measures.

The EU’s primary mechanism for mitigating carbon leakage risks has been to pay certain companies free allocations.

These measures include a system of tariffs on carbon-intensive goods imported from abroad to be paid by the importer when the products enter the EU and the creation of certificates representing emissions built into the goods.

Exemptions

A key design consideration for the tariff policy was that it provided exemptions for imports from countries with carbon levels that met the strict EU levels.

Governments in Least Developed Countries (LDCs) contend that this measure discriminates against the poorest nations, which do not have climate regulations or administrative capacity to comply, even though LDCs do not account for a significant share of EU imports of covered goods.

In response to these concerns, the agreement provides for technical assistance to developing countries and LDCs to comply with the new tariff regime.

WTO framework

The European Union’s tariff system faces problems related to the WTO framework of WTO rules. It is the principle in the General Agreement on Tariffs and Trade (GATT) that prohibits discrimination between countries.

Another rule of non-discrimination, in Article 3 of the GATT, states that there is no preferential treatment or protection for domestic similar goods, and thus tariffs can be challenged by treating goods produced abroad differently and by providing protection to the domestic industry by subjecting foreign products to an import tariff.

The EU instituted the tariff regime as an important climate measure because it would apply its own emissions standards to imported goods.

The European Union confirms that the tax paid by the importer will be equal to the cost of the allowances that the EU producers will have to pay so that it is not a discriminatory tax in nature. Also, goods produced in a more carbon-intensive way are not similar products to the products of the Union.

Impact of the tariff regime

The EU instituted the tariff regime as an important climate measure because it would apply its own emissions standards to imported goods, thus encouraging emissions reductions by producers who export goods to Europe.

The impact of the new EU tariff regime on global emissions can be determined by how companies and other countries respond. It is known that the large size of the European Union market will stimulate other companies.

However, it is not known whether this demand will stimulate developing countries to provide production commensurate with the European market.