10th April 2024
Carbon Tax – 3
Carbon emissions may be produced outside the country where the final product is consumed. This could be a way of avoiding paying a carbon tax by shifting the emission-producing part of the business elsewhere, or it could equally be a way for a foreign importer to achieve a price advantage over indigenous producers. A good carbon tax needs to be aware of these for means of tax evasion.
The Europe Union is phasing in such a tax avoidance mechanism – it will be 100% in place by 2026.
“The EU’s Carbon Border Adjustment Mechanism (CBAM) is the EU’s tool to put a fair price on the carbon emitted during the production of carbon intensive goods that are entering the EU, and to encourage cleaner industrial production in non-EU countries. By confirming that a price has been paid for the embedded carbon emissions generated in the production of certain goods imported into the EU, the CBAM will ensure the carbon price of imports is equivalent to the carbon price of domestic production, and that the EU’s climate objectives are not undermined. The CBAM is designed to be compatible with WTO-rules.” https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en
Just as domestic carbon taxes can disproportionately affect the poor, so carbon taxes can disproportionately affect poor, less developed countries. Wealthy countries can afford to invest in, for example, electric arc furnaces for producing green steel, or in wind farms to generate green electricity, but poorer countries may struggle to invest to the same degree leaving them stuck with using carbon producing industrial processes and therefore subject to more taxation! Just as poorer households need to be supported with subsidies and grants to enable them to shift to greener lifestyles, so poorer countries need to be supported with subsidies and grants from the wealthier nations, to enable them to shift to to greener infrastructures.
The Green Tau 