In a speech on 22nd March at the European Commission conference on sustainable finance in Brussels, French President Emmanuel Macron argued for a higher carbon price plus carbon tariffs at Europe’s borders.
He said that the successful transition to a low-carbon economy requires financial market reforms to drive investment into clean technologies. Though this was the intention of Europe’s Emissions Trading Scheme (EU ETS), it hasn’t been successful because the price it sets on carbon emissions is too low to have much impact, and also due to the permits given out to polluting industries.
As a result, France has set a price of €44 a tonne on petroleum products, and since 2013 the UK has had a Carbon Price Floor to prop up the low carbon price set by the EU ETS. This is currently at £18 a tonne and has had some success in driving down coal use, though there is a risk of coal making a comeback if the price is not increased. When introduced, the plan was for it to go up to £30 a tonne in 2020.
A European carbon price floor is what Macron is now proposing. It’s “the only way of creating new economic opportunities”, he said, since it will accelerate investment into job-creating sectors such as decentralised power generation.
But this will be resisted by many in Europe, such as heavily coal-dependant Poland and also Germany, saying it worries about starting a trade war, though Macron noted that an EU carbon price floor would need to be accompanied by social policies to help those regions likely to suffer heavy job losses. France, which gets most of its electricity from nuclear, has among the lowest per capita emissions in Europe and so would not be hit nearly as hard as the big coal burning nations of central Europe.
The carbon price floor would need to be complemented by
a border adjustment mechanism to avoid penalising our companies because of our climate commitments
Any country or region that puts a price on carbon is effectively putting up the price of just about everything it produces since just about everything we produce results in carbon emissions due to the pervasiveness of fossil fuels in our economies. This harms the competitiveness of industries in relation to those outside the carbon pricing zone, particularly high-energy industries since they would have higher costs than similar industries in places where carbon is not priced, or where it’s priced at a lower level. A border adjustment, or carbon tariffs, would apply the carbon price to any imports and rebate it for exports, thus levelling the playing field.
we have to put in place a taxation at the border for those who decide not to make the same environmental choice.
He didn’t say who he was thinking of when he said that, but he called on the EU to abandon its policy of the weak, applying environmental taxes and regulations to its own businesses whilst giving those importing into the EU a free ride.