The EU’s Carbon Tax is Protectionism We Don’t Need

The new president of the European Commission, Ursula von der Leyen, is assembling her cabinet, which will be presented and subjected to hearings by the European Parliament in autumn. Yet when it comes to the priorities of her Commission, she has already laid out several far-reaching proposals, particularly on the environment. Von der Leyen has made it known that she wants to fight climate change through increased taxes, most notably carbon taxes.

Those carbon taxes would be in addition to the EU Emissions Trading Scheme (EU ETS), which puts a variable price on a ton of CO2. At the moment, that price is €26 ($29)—and according to climate activists in Germany, it should be €180 ($200).

On top of that, now, we have the “carbon border tax.”

The main objective of this border adjustment is to prevent the relocation of carbon-intensive production to non-EU countries, a problem known as “carbon leakage.” When companies outsource production to avoid carbon costs, they shift their emissions abroad. That reduces the effectiveness of EU climate policy objectives. This is of exceptional concern to Brussels, as non-EU countries, such as those in the Balkans, as well as Moldova, Belarus, and Ukraine, could come to rival EU producers as a result. The logic is very European: first we curb our own business efficiency through regulation, then we call other countries unfair competitors. This will affect the United States as well.

This is hardly the first time that European leaders have restricted trade due to environmental concerns. It was the most notable reason why the Obama-era free trade agreement, the Transatlantic Trade and Investment Partnership (TTIP), was laid on ice, or why the bloc still does not have a free trade relationship with China. French President Emmanuel Macron is even threatening to block a trade arrangement with South American countries (called Mercosur) in case Brazil leaves the 2015 Paris Climate Accord.