Green Tariffs- CO2 borders

Anukruti Maheshwari

Green Tariffs have been increasing, especially when concerning the electricity industry. Tariffs are a type of barrier to entry in terms of trade It is a tax levied by a country on imported goods, which could be imposed on specific goods such as the recent carbon border tariff in the EU. The EU has introduced a carbon tariff on carbon-intensive imported goods. This tariff has greatly affected manufacturing industries since they increase the overall costs of the producers exporting to the EU, especially for the producers from China that are exporting goods to the EU, the carbon tariff has increased the overall costs for producers to trade with the EU.

With an increase in the manufacturing industry, there has been an increase in carbon and hydrogen emissions Recently, the EU has become the first leading economy to impose green tariffs on imported goods, particularly in industries that rely on goods such as heavy fossil fuels, iron and steel, aluminum, cement, and fertilizers. The government of the EU has been keen to reduce carbon emissions therefore, green tariffs are imposed to reduce CO2 emissions as well as cut down on overall greenhouse gas emissions

The imposition of carbon taxes has been a way for the government to be able to internalize the negative external costs of CO2 emissions. It is a way for producers and consumers to pay for the social cost of creating and consuming the good. The purpose of this tax is to give an incentive for firms to develop goods that are more environmentally friendly. Taxing carbon emissions would nudge people to opt for solar power or wind generators, which are more competitive than burning fossil fuels. In the long run, this may also increase investment in renewable energy, leading to technological developments. In the past few years, technology has made solar power much more reliable and effective A carbon tax could nudge producers to switch to renewable energy for production, which has relatively lower pollution costs than burning fossil fuels like carbon.

The tariff revenue earned by the government could be further reinvested in environmental initiatives, for instance, the EU government could subsidize transports that are more environmentally friendly.

However, a disadvantage of imposing green tariffs to reduce CO2 emissions could be that firms would be moving out of the EU manufacturing market to benefit from lower prices. The firms would then be able to avoid the regulations, or there could be an increase in the production of cheaper goods which would emit more carbon in the process bringing in no overall reduction in the levels of carbon emissions Moreover, it may be difficult to measure the amount of carbon emitted, which makes it difficult to measure the “right” amount of tax that should be charged.

The EU and other developed and developing countries have pledged to reach net-zero emissions by 2050. Governments all around the world have increased regulations on emitting outputs and encouraged transformation towards adapting e-transportation. Other mechanisms like the cap-and-trade system have also been adopted by countries that put a limit to the number of such goods entering the country based on the extent of emissions released into the atmosphere every year, based on their carbon credits in the US for instance. Companies like Tesla earn billions by selling their carbon credits to other companies like Toyota and Chevron.

About 27 countries have been imposing a carbon tax, some of which include, Sweden (137), Liechtenstein (101), and Switzerland (101). The EU Emissions Trading System currently imposes its CO2 tax at a rate of 62.45 euros. Countries like Russia and the USA have lodged against the proposal for imposing a carbon border, claiming that they may lose profits.

In the USA, President Joe Biden has been pushing towards cutting down emissions by half of the current emissions by 2030, as well as reach to netzero emissions by 2050 but failed to include any carbon pricing initiatives or schemes in his plan. The White House has been said to have ignored Democrats’ plan to impose a carbon border few Currently, in the USA, there have been a few initiatives implemented including the cap-and-trade program in California and ETS in Massachusetts.

Bibliography

Green tariffs: What are they and why do they matter? (2022) The Guardian Guardian News and Media. Available at: https://www theguardian com/environment/2022/de c/13/green-tariffs-what-are-they-an watchwire admin (2022) Green tariffs: What they are and why they matter, WatchWire Available at: https://watchwire.ai/green-tariffs-explained Sethi, M. (2022) What countries have a carbon tax?, GCCfintax GCC Fintax Available at: https://www.gccfintax.com/articles/what-countrieshave-a-carbon-tax--4100.asp