Joe Biden shares the EU’s carbon emissions plan with the big problem of climate change

Rising trade tensions between the US and the European Union, two of the world’s most important leaders when it comes to climate policy, could undermine important climate initiatives by both governments and make it more difficult for the world to put the brakes on climate change.

The two are fighting over 2022 Inflation Reduction Act’s requirements that products be made in America to receive certain US subsidies. The EU recently announced plans for own domestic-only clean technology response subsidy.

The US and EU also now have competing carbon tariff proposals, and these could end up undermining each other.

In December 2022, the EU reached a temporary agreement of a carbon boundary adjustment mechanism. It will install carbon-based tariffs of steel, aluminum and other industrial imports that are not regulated by the same climate policies in their countries. The Biden administration, on the other hand, has proposed a “green steel club” of countries to cooperate in reducing emissions by charging tariffs on relatively high-emission imports.

At first glance, the two methods may seem similar. But the EU and US proposals reflect very different and potentially incompatible visions for the intersection of climate and trade policies.

A failure to align approaches risks further fueling trade tensions and possibly having international repercussions. Without multinational coalitions, dirtier, lower-cost competition will dwarf emerging low-carbon technologies.

A strong transatlantic partnership is essential to the greening of the global economy. Without creative compromise and skillful diplomacy, the EU may find that its tariffs lead to retaliation rather than action, and the US’s desire to create climate clubs will not get off the ground.

The EU’s book approach to tariffs

The carbon border adjustment mechanism, or CBAM, is tied to the EU’s main climate policy, its emission trading system. The system requires large European factories and other greenhouse gas emitters to buy an allowance for every ton of carbon dioxide they emit. This is a form of carbon pricing.

However, if only European industries have to pay this carbon price, the EU risks losing domestic production to imports from countries with weak emissions regulations. This phenomenon, called “carbon leakage,” can result in dirtier industrial production.

Until now, the EU has avoided carbon leakage by paying domestic producers of certain industrial products with free emission allowances. But that method has become more expensive as carbon price increasewith a recent trading range of 70 to 100 euros per metric ton. The CBAM makes it possible to phase out these free allowances by phasing in tariffs on imports from countries without comparable carbon pricing policies. Once completed, the tariffs will be applicable starting in 2026. How the EU carbon border adjustment will work.

CBAM was met with some international outrage, with “BRICS” countries – Brazil, Russia, IndiaChina and South Africa – calling it”discrimination“and a US senator accused the EU of going”rude.”

In fact, CBAM treats domestic products and imports equally by applying the same carbon price, as recommended in any economics textbook. It also aims to increase global climate action by giving other countries an incentive to implement their own carbon pricing policies.

Biden’s climate club approach

Unlike the EU, the US has failed to adopt a national carbon price though many tests. The Inflation Reduction Act instead complements federal climate policy by offering subsidies for clean energy production.

However, subsidies to American producers do not reduce emissions from other countries’ production of internationally traded products.

For example, steel make up 11% of the world carbon dioxide emissions, with most from East Asia, including 53% of global production from China. Changing production in China is crucial to lowering emissions.

Encouraging a global shift to cleaner production methods will require international cooperation, including trade measures that enable costly low-carbon investments and penalize high-emissions steel. production.

President Joe Biden needs an approach to climate tariffs that benefits US producers without requiring a politically unsustainable carbon price. his proposed green steel club is an agreement between countries that commit their steel and aluminum industry to meet certain emissions standards. Tariffs will be imposed on imports that exceed the standard or from countries that have not signed the agreement.

Most US manufacturers will benefit. US steel typically produces fewer emissions than its competitors. The desire to take advantage of it”carbon advantage” holding politicians to two sides in the aisle.

Biden’s plan would be the first “climate change” in the country, which is consistent with the recommendations of the increase number on policy experts. on new bookCharles Sabel and David Victor suggest building on international success in eliminating ozone-depleting chemicals: The Montreal Protocol used a combination of cooperative learning, sanctions and pooling of resources for countries in need of technical and financial support.

Creative ways to collaborate

The two visions for climate policy tariffs include different paths to somewhat different goals, so they are not easily reconciled. The premise of the EU strategy is that tariffs are necessary to ensure that climate policies impose equal costs on domestic and foreign emitters. In contrast, the US has proposed tariffs that penalize producers with high emissions.

The US cannot continue the EU approach without some form of national carbon pricing. At the same time, the EU is unlikely to abandon the long-planned and painstakingly negotiated CBAM, especially to cooperate with a White House that may have a different occupant in two years.

There are, however, ways forward that blend elements of both visions.

For example, parts of the CBAM, including linking the carbon price to the EU, can be included as elements of climate clubs, including Biden’s green steel club. That could enable the EU to maintain hard-fought progress on its emissions trading system.

On the other hand, some US senators pushing the law to make an adjustment to the US carbon border, including a domestic carbon price and a tariff on imports of certain energy-intensive products such as steel and aluminum. Bipartisan support for such a bill would create a basis for a lasting compromise with the EU. However, even a narrow carbon price on industrial products may not be politically feasible in the Republican-controlled House of Representatives.

Looking ahead

Any unilateral use of tariffs will strain sensitive geopolitical relations.

By pursuing compromise instead of conflict, the US and EU can use their combined economic strength to create a powerful coalition that encourages low-carbon industrial production around the world, including in China and India, without ‘y giving up local advantages.

In our view, both sides have good reason to find common ground.

Noah Kaufman is a Research Scholar in Climate Economics, Columbia University; Chris Bataille is a Research Fellow in Energy and Climate Policy, Columbia University; Gautam Jain is Senior Research Scholar in Financial Markets, Columbia Universityand Sagatom Saha is a Research Scholar in Energy Policy, Columbia University.

This article was reprinted from The Conversation under Creative Commons license. Read the original article.

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