The carbon tax at borders, a risk for European competitiveness

The carbon border tax was introduced to protect the greening efforts of European economies, but it risks making them less competitive, according to two recent studies. The Carbon Border Adjustment Mechanism (CCF) to which the European Parliament gave the green light on 18 April will oblige importers of certain products to buy emission allowances in the same way as European manufacturers, in order to maintain a level playing field in the face of the programmed disappearance of free allowances in Europe.

See alsoCarbon pricing puts at stake the "survival" of certain industries in Europe, according to a study

The importer of Chinese steel or Turkish cement will have to declare the emissions related to the production process and if they exceed the European standard, acquire an emission certificate at the price of CO2 in the European Union. If a carbon market exists in the country of production, but with a lower carbon price than in Europe, as is currently the case in China and some US states, the importer will pay the difference. "The objective is to have a carbon price within Europe without this weighing from the point of view of competitiveness on the products that are subject to it," explained to AFP the economist Aude Pommeret, who coordinated the competitiveness component of the voluminous report on the economic impacts of climate action, submitted in May to Elisabeth Borne by economist Jean Pisani-Ferry.

According to this report, the MACF is "an imperfect device, which limits carbon leakage, but does not fundamentally address the issue of competitiveness" while "the European industrial bet is called into question by the IRA", the American plan that subsidizes environmentally virtuous products manufactured on the soil of the United States.

Threat to reindustrialization

Another complaint in the Pisani-Ferry report is that the MACF aggravates the problems of distortion of competition for exporters. The mechanism will be phased in between 2026 and 2034, in parallel with the phasing out of free emission allowances. Products subject to this quota system and manufactured in Europe will thus be more expensive, and therefore less competitive than elsewhere. "A car made in the EU with European steel will incur an additional cost because of its carbon content, this will not be the case for cars made in China," the report notes.

" READ ALSO A Swedish producer will supply 50,000 tons of carbon-free steel per year to Mercedes

«

With this new system, we will charge users. It is not the Chinese or the Turks who will pay the border tax, this is what may be misunderstood by the general public or even by decision-makers," lamented in an interview with AFP Raphaël Trotignon, co-author with Olivier Redoulès of a study published Wednesday by the Rexecode institute entitled "The architecture of carbon adjustment at borders threatens the objective of reindustrialization ». The two economists calculated that on the one hand, the total value of products on the MACF list imported by the France amounted to only 7 billion euros per year, out of 575 billion euros of imports in 2019.

But on the other hand, the abolition of emission allowances, or permits to pollute, free of charge, will have a much broader scope, representing "a deterioration of the operating accounts of companies of the order of 45 billion euros per year at European level and 4 billion euros in France", according to Rexecode. "There is an antagonism between the initial idea, which is to protect against European competition, and the fact that paradoxically, for a part, we risk aggravating deindustrialization," says Raphaël Trotignon.

The MACF, whose implementation will be tested from autumn 2023, will initially cover only the energy sectors as well as very energy-intensive industries and commercial aviation. The mechanism will be gradually extended to maritime transport and then to road transport and the construction sector in 2027-2028. But no timetable exists for all industrial products, whose carbon content is all the more difficult to calculate as the manufacturing steps are numerous. Despite all these imperfections, the MACF "goes in the right direction", nevertheless believes Aude Pommeret, adding that "any initiative and any European success to coordinate and to go in the right direction were very widely to be welcomed".