Opinion

Relaunching transatlantic cooperation with a carbon border adjustment mechanism

The best way for the EU and the US to jointly introduce carbon border adjustment would be to form a ‘climate club’.

By: and Date: June 11, 2021 Topic: Global economy and trade

This piece was originally published by Le Monde and Domani.

Le Monde logo

On June 15, President Joe Biden will join Charles Michel and Ursula von der Leyen in Brussels for an important European Union–United States summit that aims at relaunching bilateral cooperation after four years in which it has withered. Climate change features at the top of the agenda, raising hopes about the potential role of the transatlantic partners in fostering global decarbonisation.

There is reason for optimism. The two economies share today a common climate ambition and, representing 40% of global gross domestic product and 30% of goods imports, other countries cannot simply ignore what happens here. The key question is, how can the EU and the US decarbonise domestically while also creating an incentive for other countries to move in the same direction? In our view, the answer can be found in the joint introduction of carbon border adjustment measures.

A carbon border adjustment measure is a tariff on imported goods based on their carbon content. This tariff, the amount of which would be equivalent to domestic carbon prices, will be necessary in any country that intends to seriously scale-up decarbonisation. The introduction of strong carbon pricing measures and strong environmental regulations to curb emissions runs the risk of carbon leakage, a situation in which, in order to cut costs, companies shift the production of carbon-intensive goods to countries with weaker policies. Economies with tough climate measures then import those products. Thus, carbon border adjustment is not about protectionism, but about ensuring a level-playing field in a situation in which some countries are doing more than others to implement their decarbonisation pledges.

In the context of the European Green Deal, the EU is already planning the introduction of a carbon border adjustment measure covering the electricity sector and energy-intensive industrial sectors by 2023 at the latest. This could be a good start to the system, which must then be expanded to all imported goods to be efficient and effective. Until last year, European policymakers feared that the United States would have considered such a move as the start of a trade war, but with President Biden there is now an opportunity for a very different conversation. During the presidential campaign, he himself pledged the introduction of carbon border adjustment measures on carbon-intensive goods imported from countries that are failing on their climate and environmental obligations. Furthermore, the US Congress is working on two carbon pricing bills that also include carbon border adjustment.

The best way for the EU and the US to jointly introduce carbon border adjustment would be to form a ‘climate club’, which can be done in three steps. First, they would have to coordinate their domestic decarbonisation roadmaps more closely. Each can choose its own approach, but near-term milestones should be broadly similar, to avoid carbon leakage. Second, they would have to agree on a clear methodology to measure the carbon content of all goods, including the most complex. Third, they would need to make sure the system is transparent and open to all countries willing to join, as this would ensure compliance with the provisions of the World Trade Organisation.

By setting-up such a climate club, the EU and the US would not only ensure their industrial competitiveness while they accelerate domestic decarbonisation, but they would also give others – starting with China – a significant incentive to scale-up their domestic climate measures to be part of the club, and thus avoid being subject to such tariffs in key export destination markets.

To further increase its contribution to global decarbonisation, alongside its international acceptance, part of the revenues collected from a carbon border adjustment mechanism should be used to fund the deployment of clean technologies in low-income countries.

Thanks to clean-technology developments and unprecedented political momentum, the world has a chance to reverse its failure to tackle climate change. The EU and the US have a historical duty to lead. Doing so by creating a climate club founded on the joint introduction of a carbon border adjustment mechanism, open to all willing countries, offers the greatest guarantee of success.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to [email protected].

Read about event More on this topic
 

Upcoming Event

Jan
25
17:00

Where is Biden's climate policy?

A year after his inauguration, what has President Biden really achieved on climate?

Speakers: Samantha Gross, Dan Lashof, Michael Mehling and Simone Tagliapietra Topic: Green economy Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More on this topic
 

Opinion

How an open climate club can generate carbon dividends for the poor

The German-led G7 can accelerate decarbonisation while tackling climate justice.

By: Andreas Goldthau and Simone Tagliapietra Topic: Green economy Date: January 11, 2022
Read article More on this topic More by this author
 

Opinion

What the EU climate package has to overcome in 2022

An overview of the EU climate package to be negotiated in 2022.

By: Simone Tagliapietra Topic: Green economy Date: January 4, 2022
Read article More on this topic
 

External Publication

Sustainability transition and the European Green Deal: A macro-dynamic perspective

Report of the results of work carried out at ETC/WMGE on Green economy transition: Macroeconomic analytical framework in 2020 and 2021.

By: Nicolò Barbieri, Ilaria Beretta, Valeria Costantini, Alessio D’Amato, Marianna Gilli, Giovanni Marin, Massimiliano Mazzanti, Simone Tagliapietra, Roberto Zoboli,, Mariangela Zoli, Susanna Paleari, Andrea M. Bassi and Stefan Ulrich Speck Topic: Green economy Date: January 3, 2022
Read article
 

Blog Post

European governanceInclusive growth

12 Charts for 21

A selection of charts from Bruegel’s weekly newsletter, analysis of the year and what it meant for the economy in Europe and the world.

By: Hèctor Badenes, Henry Naylor, Giuseppe Porcaro and Yuyun Zhan Topic: Banking and capital markets, Digital economy and innovation, European governance, Global economy and trade, Green economy, Inclusive growth, Macroeconomic policy Date: December 21, 2021
Read article More on this topic
 

Blog Post

How serious is Europe’s natural gas storage shortfall?

Europe may not have enough natural gas in storage for the coming winter; close monitoring of the situation will be essential.

By: Georg Zachmann, Ben McWilliams and Giovanni Sgaravatti Topic: Green economy Date: December 21, 2021
Read article More on this topic More by this author
 

External Publication

L’Union européenne et les États-Unis, un an après

Après une année troublée par Kaboul et AUKUS, qu'avons-nous retenu de l'an I de la présidence Biden ? Maria Demertzis revient sur les évènements marquants de l'année 2021 pour la relation entre les États-Unis et l'Union européenne.

By: Maria Demertzis Topic: Global economy and trade Date: December 8, 2021
Read article More by this author
 

Blog Post

European governance

The Global Gateway: a real step towards a stronger Europe in the world?

Disappointment at the lack of fresh cash from European Union global connectivity strategy is short-sighted: Europe supports global development more than any other country in the world. Using existing funds more strategically is the right priority for now.

By: Simone Tagliapietra Topic: European governance, Global economy and trade Date: December 7, 2021
Read article More on this topic
 

External Publication

Europe's path to net-zero

Fostering the industrial component of the European Green Deal: key principles and policy options.

By: Simone Tagliapietra and Reinhilde Veugelers Topic: Green economy Date: December 3, 2021
Read about event More on this topic
 

Past Event

Past Event

European Green Deal beyond the Brussels climate bubble

How can the European Green Deal be implemented beyond Brussels?

Speakers: Maciej Bukowski, Sarah Coupechoux, Zsolt Darvas, Susi Dennison, Michal Horvath, Lara Lázaro, Marie Le Mouel, Michael Losch, Giulia Novati, Davide Panzeri, Thomas Pellerin-Carlin, Nolan Theisen, Shahin Vallée, Marc Vanheukelen and Georg Zachmann Topic: Green economy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: December 2, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

COP26: global stocktake and what’s next

What happened and what didn’t happen at COP26?

By: The Sound of Economics Topic: Green economy Date: November 25, 2021
Read about event More on this topic
 

Past Event

Past Event

COP26: global stocktake and what’s next

In this episode of the Sound of Economics Live, join us as we contribute to the global stocktake of the climate summit, to foster a clearer understanding of the game changers and the missed opportunities.

Speakers: Li Shuo, Diederik Samsom, Simone Tagliapietra and Laurence Tubiana Topic: Green economy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: November 25, 2021
Load more posts