EU’S INTENDED CARBON BORDER TAX

Abstract

The first episode of the Political Economy of Taxation Podcast deals with the EU’s intended Carbon Border Tax. A more detailed legal proposal is expected towards the end of the month. Thus, the aim is to give informative insights about the intended Carbon Border Tax to raise awareness just before the EU publicizes the proposal. The Carbon Border Tax intends to impose the same cost on imports that do not face carbon taxes outside the EU. This approach aims at reflecting more accurately the price of imports and with its carbon content. Ultimately, carbon leakage should be prevented. In terms of the design, it is expected that the Carbon Border Tax will be imposed in specific carbon-intensive sectors with a high risk of carbon leakages, such as the coke and refined petroleum sectors. These sectors will most likely also be the losers of such a tax. On the other hand, states and companies that can adapt quickly by reducing their carbon footprints regardless of being inside or outside the EU would be benefitting from the introduction of a Carbon Border Tax. It is hard to evaluate the effectiveness of Carbon Border Taxes since there is a lack of data. The EU’s intended Carbon Border Tax also includes various political aspects, such as new revenue sources, the division among EU-Members and the idea of a climate club. Switzerland most likely will be exempted from such a Carbon Border Tax since it has similar carbon prices in place, and the EU stressed to comply with WTO rules.

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