The European Union is the center of the recent ‘go-green’ 🌳 development. It wants to make Europe the first carbon-neutral continent by 2050. And now it is almost in the middle of drafting a mechanism that will become the centerpiece of this green push.
💚 Call it ‘Green Taxonomy’ or CBAM (Carbon Border Adjustment Mechanism). The EU is in the process of formalizing a carbon tax on imported goods made using cheap, and carbon dioxide-producing power sources It also aims to ensure that imports from outside Europe do not have an unfair advantage if manufactured with a larger carbon footprint. The draft will be presented by June of this year and the implementation year is predicted to be 2023. This could bring in $6bn to $16bn, which would replenish the EU budget and finance the bloc’s green transition.
Roadmap for Carbon Neutrality 2050…🛣️
💸 So, Who Pays? The cement, steel, and chemical industries! They are ⚡ energy-intensive, exposed to international competition, and cannot easily switch their manufacturing processes to low-carbon electricity. Companies in Eastern Europe, Turkey, and North Africa are most at risk of being targeted. Firms in South Africa and India, which use high shares of coal power, and Russia, which imports oil, gas, and metal to the continent, will also suffer. China’s steel-making industry 🏭 could be affected.
The Carbon Taxes works on a ☝️ ‘polluter-pays principle’ aka the so-called ‘user-pays principle’. (that calls upon the user of a natural resource to bear the cost of running down natural capital).
💰 Portugal’s Recent Air and Sea Carbon Tax. The lawmakers of the country have recently implemented a set of ‘fees’ on consumers traveling by air and sea, amounting to €2 (approximately $2.30) per passenger. Similar solutions are already in place in eight European countries: Austria, France, Germany, Italy, Netherlands, Norway, Sweden, and the UK.
🛡️ A New Form of Protectionism? Australia did not hold back on its thoughts while the EU was being protectionist. And it is not surprising for an industry-heavy continent like Australia to make this assumption.
BCG estimated, for example, that a levy on EU imports of $30 per metric ton of CO2 emissions—one potential scenario—could reduce the profit pool for foreign producers by about 20% if the price for crude oil remains in the range of $30 to $40 per barrel. 🧐
“The levy could reduce profits on imported flat-rolled steel, in particular, by roughly 40%, on average. The impact of the added costs would be felt far downstream.”
📢 John Kerry’s Words. “It [a carbon border tax] does have serious implications for economies, and for relationships, and trade,” he said. “I think it is something that’s more of a last resort when you’ve exhausted the possibilities of getting emission reductions and joining in some kind of compact by which everybody is bearing the burden.”
Retaliation taxes from the EU’s largest trading partners, such as Russia, India, and China might provoke a global trade war.
🧳 Pack up for China & India. European nations don’t want to see companies packing up for places like China or India for their less stringent environmental rules. The goods produced there will be cheaper. A carbon border tax would make those products more expensive, reducing the incentive to manufacture and move jobs overseas.
💭 Forget the Pushbacks from the world… will it be easy to secure an agreement from ALL 27 EU nations? 🤔
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In Canada, makers of children’s breakfast cereal are granted tax-exempt status if their cereals contain ‘free toys.’🧸
Here’s the kicker – this exemption is limited to toys that are not “beer, liquor, or wine.” 🍺