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Here’s How the EU Could Tax Carbon Around the World

Economy In Town At Threat As Tata Steel Ltd. Considers Selling Its U.K. Business
Photographer: Chris Ratcliffe/Bloomberg

The European Union has a bold plan for sharply reducing carbon emissions from its factories. It has what might be an even bolder plan for preventing the rest of the world from wiping out those cuts, and killing lots of European jobs at the same time. The plan is for taxing some of the carbon produced by the European factories’ global competitors, through what’s known as a border carbon adjustment mechanism. Other countries might call it a tariff, and a potentially illegal one at that. For the EU, the mechanism could be a way to hit two birds with one stone: protecting its industry while prodding other regions to move ahead with similar climate action. But there’s another as well: the cash such a carbon charge could bring in to strapped EU coffers.

The 27-nation EU, which already has a binding target to cut greenhouse gases by at least 40% by 2030 from 1990 levels and runs the world’s biggest carbon market, wants to become climate-neutral by mid-century under an unprecedented strategy called the Green Deal. Measures to tighten its existing climate goals that will drive up the price of carbon emissions within the EU are a central pillar of that strategy. The problem is what’s called carbon leakage – production shifting to places with laxer climate policies to avoid those costs.