In a landmark decision, the European Parliament and the Council of the EU reached an interim agreement on the EU Carbon Border Regulator at the end of 2022. The mechanism, which is set to start operating in October 2023, aims to reduce carbon emissions by levying a carbon tax on imported goods that do not meet European Union (EU) environmental standards.
Importers will be subject to reporting obligations during the initial phase of implementation, with the full mechanism expected to be in place by 2026. The carbon border tax is part of the EU’s efforts to reduce greenhouse gas emissions by 55% by 2030 and achieve climate neutrality by 2050.
The agreement also includes reforms to the Emissions Trading Mechanism, which is the EU’s flagship climate policy. The proposed reforms aim to increase the price of carbon and reduce the number of free emissions allowances granted to industries. This will help to incentivize companies to reduce their carbon emissions and transition towards a low-carbon economy.
The EU Carbon Border Regulator is seen as a significant step towards ensuring that the EU’s climate goals are not undermined by imported goods that do not meet EU environmental standards. However, there are concerns that the mechanism could lead to trade disputes and retaliation from countries that feel unfairly targeted by the carbon tax.
The interim agreement reached by the European Parliament and the Council of the EU is an important milestone in the EU’s efforts to combat climate change. It sends a clear message that the EU is serious about reducing carbon emissions and achieving climate neutrality. However, the success of the mechanism will depend on its effective implementation and the cooperation of trading partners. The EU will need to work closely with other countries to ensure that the carbon border tax does not lead to trade tensions and disrupt global supply chains.