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Getting Serious About the European Green Deal with a Carbon Border Tax

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Abstract

In December 2019 the incoming European Commission announced the European Green Deal (EGD), which aims to turn the EU into a climate-neutral, circular economy. Although it is as yet not very specific in many areas, the EU’s Green Deal sends the right signal and contains several promising elements. One of these is the introduction of a carbon border adjustment (CBA) mechanism mentioned as an option in the EGD. Apart from supporting the ecological objectives of the EGD, a carbon border tax can help to counter carbon leakage in EU industries that results from the EU’s internal carbon pricing system. This way, distortions of competition in energy-intensive industries due to asymmetric domestic carbon pricing policies can be partially remedied. Another positive side effect of a carbon border tax is that it would add a new source of income to the EU budget that is independent of Member States’ direct contributions. To reap this “triple dividend”, the CBA needs to be carefully designed both economically and legally. In particular, a European CBA mechanism needs to be compatible with the EU’s WTO obligations under the GATT. While this is challenging, it is perfectly feasible. Therefore the EU should introduce a carbon border tax as soon as possible, even though this is a high-risk strategy that is likely to increase existing tensions in the international trading system and will probably require an adjustment of its current trade policy.

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  • Roman Stöllinger, 2020. "Getting Serious About the European Green Deal with a Carbon Border Tax," wiiw Policy Notes 39, The Vienna Institute for International Economic Studies, wiiw.
  • Handle: RePEc:wii:pnotes:pn:39
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    File URL: https://wiiw.ac.at/getting-serious-about-the-european-green-deal-with-a-carbon-border-tax-dlp-5390.pdf
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    1. Donatella Porrini, 2019. "Defining the efficient relation between different climate change policies," International Journal of Global Environmental Issues, Inderscience Enterprises Ltd, vol. 18(3), pages 236-248.
    2. Martin L. Weitzman, 2014. "Can Negotiating a Uniform Carbon Price Help to Internalize the Global Warming Externality?," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 1(1), pages 29-49.
    3. Aaron Cosbey & Susanne Droege & Carolyn Fischer & Clayton Munnings, 2019. "Developing Guidance for Implementing Border Carbon Adjustments: Lessons, Cautions, and Research Needs from the Literature," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 13(1), pages 3-22.
    4. Sandor Richter, 2008. "Facing the Monster 'Juste retour': On the Net Financial Position of Member States vis-à-vis the EU Budget and a Proposal for Reform," wiiw Research Reports 348, The Vienna Institute for International Economic Studies, wiiw.
    5. Gary Clyde Hufbauer & Zhiyao (Lucy) Lu, 2017. "Border Tax Adjustments: Assessing Risks and Rewards," Policy Briefs PB17-3, Peterson Institute for International Economics.
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    More about this item

    Keywords

    Carbon border tax; externalities; ecological transformation; WTO; EU budget;

    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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