Should U.S. Industry Be Worried About The EU’s Carbon Tax?

As Connecting the Dots has noted several times this spring, the European Union has approved legislation to impose taxes on imports based on the greenhouse gasses emitted during manufacturing. Goods covered under the carbon tax include iron, steel, aluminum, cement, electricity and hydrogen, and downstream products like screws and bolts.

Companies that import these products into the EU would need to purchase certificates to make up the difference between the carbon price paid in the products’ country of origin and the price of carbon allowances in the EU. Trade partners have raised concerns about the administrative overhead that could be involved in exporting to Europe under the new regulations.

Indeed, as Connecting the Dots reported earlier this month, U.S. government asked the EU to exempt U.S. operations from its carbon border levy since it would adversely affect U.S. operations. New research from the nonpartisan nonprofit Tax Foundation also urged caution when it comes to carbon taxes, but maintained these levies can have positive outcomes and may be better than alternatives.

Specifically, the Tax Foundation said that while a carbon tax may reduce emissions at relatively low economic cost, these taxes are rarely accompanied by complementary efforts to streamline environmental policymaking. In other words, “it is less likely that carbon taxes replace current environmental regulations and more likely that they substitute for new expansions of climate regulations.”

Read the Tax Foundation’s full report here.