Impact of the EU’s New Carbon Tariffs on the Global Economy

NB: We do not resell your papers. Upon ordering, we do an original paper exclusively for you.

NB: All your data is kept safe from the public.

Table of Contents

Introduction
Global Warming Background
EU’s New Carbon Tariff
Impact of Carbon Tariff on the Global Economy
Conclusion
References

Introduction

The environmental problems induced by carbon emissions force many developed nations to find solutions. Among such decisions was adopting a carbon border adjustment mechanism (CBAM) called to improve climate change and regulate the economy. Although the EU’s carbon tariff has been implemented with a sincere intention to move a step toward green technologies and sustainability, the economic effects of such an initiative look highly questionable.

Global Warming Background

Before identifying the impact, one should learn more about climate change and the attempts to prevent or mitigate it. Global warming has an impact on various life areas in plentiful localities. Nordhaus (2019) explains climate change from the beneficial and disadvantageous perspectives. The author states that the costs and advantages of the environmental problem spill outside the market and are not limited by market prices, which contributes to knowledge development (Nordhaus, 2019). On the other part, it leads to pollution that affects human health, which may compromise different indicators, such as employment rates, the quality of public health services, and so further.

Given this, it is possible to admit a paradox that creates an endless circle of problems and solutions. Economic growth in any country inevitably gives momentum to increased carbon emissions (Nordhaus, 2019). This assumption has also been supported by Adams and Acheampong (2019), who have found that foreign investments, population, and trade openness adversely affect the clear environment within the Sub-Saharan context. Meanwhile, renewable energy and democracy help reduce carbon emissions, providing particular insights into reviewing and altering environment-protective policies (Adams & Acheampong, 2019). Thus, the world should always be balancing between maintaining the economy and life without pollution, which looks contradictory.

Global challenges require joint action in numerous domains to achieve a substantial result. Many attempts were made to address the environmental-economic problem, but only two were successful. The first is the resolution of international trade disputes through the World Trade Organization (WTO), and the second is adopting protocols for limiting the use of ozone-destroying chlorofluorocarbons (Nordhaus, 2019). Considering the current situation with growing carbon emissions, carbon taxes may look like the most effective and rapid measure possible for broad geographic areas.

EU’s New Carbon Tariff

Europe has been striving to reduce carbon emissions for a long time. Today, the European Union (EU) does not abandon its ambitions to achieve a 55% decrease in greenhouse gas emissions by 2030 and shift to a carbon-neutral economy by 2050 (Schauenberg, 2022; Ziady, 2022). The bloc has begun the implementation of the highest carbon pricing policy in the world within the framework of the CBAM. This initiative affects imported goods from highly emitting industries, including steel, aluminum, energy, cement, and others (Schauenberg, 2022). It can be considered a relatively sophisticated solution that makes carbon-depending production unattractive for many actors in the global economy.

The goals of this decision seem to focus on killing two birds with one stone, namely, to regulate both the economy and environment with one set of measures. One of the priorities is encouraging the EU industrial companies to make their production more sustainable without additional risks on the global market (Schauenberg, 2022). In addition, the EU’s strict environmental standards are believed to have the potential to facilitate the clean production transition in business partner countries (Taylor, 2022). Moreover, the bloc intends to keep companies from moving production facilities to other ‘more lenient’ countries and thus prevent carbon leakage (Ziady, 2022). Thus, the EU-based companies have two ways, namely to meet the environmental restrictions or compensate for harm to the environment.

Nevertheless, there are specific undiscussed areas of carbon tariff implementation that should be decided later this year. On October 1, 2023, the levy test period will be launched, which will require only reporting regarding the imported goods under the scheme (Taylor, 2022). However, the end of the test stage is still unknown, after which the full levy must follow (Taylor, 2022). On the other part, the EU will have time and opportunity to monitor what kinds of products are the most frequently imported and evaluate their influence on the economy and environment.

Impact of Carbon Tariff on the Global Economy

Despite the announced benefits for individual countries and continents, the EU’s heightened carbon prices raise various doubts and concerns. Many experts suspect negative outcomes in both local and global industries and for developing countries, let alone the ineffectiveness in environmental matters (Sharma, 2022; Bacchus, 2021; Kardish et al., 2021; Eicke et al., 2021; Lim et al., 2021). As has been mentioned above, the carbon tariff is the component of the CBAM that has been criticized conceptually. With elevated pricing and higher standards, both the local and international companies will be burdened by paperwork, which requires adding another expenditure item (Sharma, 2022). In this case, the companies are also forced to involve their financial resources or investments in developing innovations, which may appear unaffordable for some organizations.

Additionally, the stakeholders outside the EU will perceive the price increase painfully. While the companies within the EU and located in the north are already part of the CBAM and have more chances to survive in the European market, this option will be limited for foreign global-south enterprises (Sharma, 2022). The main reason is the scarcity of detailed production emissions data required for certification (Sharma, 2022). On the other hand, the CBAM’s major initial impact is predicted to focus on a small number of trading partners outside the EU, with insignificant CBAM coverage of economic sectors (Kardish et al., 2021). Nevertheless, a range of countries in Africa and Eastern Europe are under considerable economic risks associated with trade relations with the EU, export structure, institutional capacities, and so further (Eicke et al., 2021). Thus, the EU’s effort looks more like the intrusion of the scheme into the context of countries that may even have insufficient capabilities to follow it.

The CBAM also risks contradicting international trade rules, which compromises the vital functioning of the global economy. Here, Bacchus (2021) raises well-fitting questions about the responses of other countries-members of the WTO and the probability of similar chain reactions in the non-EU countries. The problem is that the principle of adjusting the benefits of the imported products of one WTO member to the similar products of other WTO parties is almost violated (Bacchus, 2021). Moreover, the carbon tariff looks incompatible with the General Agreement on Tariffs and Trade (GATT) (Lim et al., 2021). The issue, in this case, is also caused by deliberate EU decisions without any international mutual agreement on them. In addition, it will push trade costs up, which will be challenging for many international companies to maintain healthy trade relations (Lim et al., 2021). Finally, while posing a substantial trade barrier, the CBAM may turn out to be disadvantageous for the EU because the conditions for entering and staying in the EU market will be unfavorable.

Conclusion

Finally, the elevation of carbon tariffs may not work as intended in economic terms, though its outcome is expected to be positive. As part of the CBAM, elevating carbon prices will add to the expenditures of domestic and foreign companies. Moreover, it poses high economic risks for non-EU countries, as their infrastructure may not be ready for alterations. Finally, the carbon tariff can compromise the long-established rules of global trade.

References

Adams, S., & Acheampong, A. O. (2019). Reducing carbon emissions: The role of renewable energy and democracy. Journal of Cleaner Production, 240, 1-28. Web.

Bacchus, J. (2021). Legal issues with the European carbon border adjustment mechanism. Cato University. Web.

Eicke, L., Weko, S., Apergi, M., & Marian, A. (2021). Pulling up the carbon ladder? Decarbonization, dependence, and third-country risks from the European carbon border adjustment mechanism. Energy Research & Social Science, 80, 1-11. Web.

Kardish, C., Mäder, M., Hellmich, M., & Hall, M. (2021). Which countries are the most exposed to the EU’s proposed carbon tariffs?Resource Trade. Earth. Web.

Lim, B., Hong, K., Yoon, J., Chang, J. I., & Cheong, I. (2021). Pitfalls of the EU’s carbon border adjustment mechanism. Energies, 14(21), 1-18. Web.

Nordhaus, W. (2019). Climate change: The ultimate challenge for economics. American Economic Review, 109(6), 1991-2014. Web.

Schauenberg, T. (2022). CO2 tax at Europe’s border: A revolution for the climate?Deutsche Welle. Web.

Sharma, M. (2022). Europe’s new carbon tariff won’t help the climate. The Washington Post. Web.

Taylor, K. (2022). EU seals agreement on world’s first carbon tariff. Euractiv. Web.

Ziady, H. (2022). EU agrees to the world’s largest carbon border tax. CNN. Web.

Click Here To Order Now!