Carbon Border Taxes Kept on the Bench at COP26
In the match against climate change, humanity was ‘5-1 down’, but after two days of talks at the COP26 conference, it had managed to pull back a goal or two, according to Boris Johnson. Not only does this metaphor demonstrate the British PM’s lack of understanding of the issue at hand, but it is also a long way from the truth. Many pledges made concerning matters actually discussed were not adequate and, more importantly, many crucial topics did not even make it onto the pitch. One of these is carbon border taxes.
A carbon border tax is “a duty on imports based on the amount of carbon emissions resulting from the production of the product in question”. Conversations about carbon border taxes simmered away quietly on the sidelines at COP26. UK ministers announced plans to implement one, and Ursula von der Leyen, at a side event on carbon pricing, expressed her support for carbon taxes. The latter’s backing comes as no surprise as the EU hopes its Carbon Adjustment Border Mechanism to be fully implemented by 2025. In general, however, discussions about this matter remained limited throughout the conference.
Carbon tax solutions have received a fair bit of criticism from both politicians and business leaders, which could explain the topic’s absence at COP26. Leaders of high-emitting export countries, such as India, have expressed their opposition, criticising carbon border taxes as discriminatory and a source of market distortion.
However, the implementation of a carbon border tax in one country could incentivise more reluctant countries to adopt carbon pricing in order to offset the costs. As the British economist Sir Dieter Helm puts it, ‘anyone can get an exemption to the CBAM if they have an equivalent [carbon price] at home’. Furthermore, the revenue generated from carbon taxes could be used to finance clean development in exporting countries.
The COP26 pledges will not be sufficient in ensuring global emissions reach net zero by 2050. Carbon border taxes may not be a perfect solution, but they are a powerful tool for reducing carbon emissions. It is therefore lamentable that such a solution, which is of as much relevance to political leaders as it is to businesses, was left on the bench at COP26.