EU's proposal for world’s first carbon border tax triggers sharp response from Russia

The EU’s economy commissioner, Paolo Gentiloni clarified saying that it is an environmental policy tool, not a tax, not a tariff and it is in line with and compliant with international trading rules.

Created On: Jul 19, 2021 13:34 ISTModified On: Jul 19, 2021 13:34 IST
EU economy commissioner Paolo Gentiloni

The European Union unveiled a proposal on July 14, 2021 to levy the world's first carbon border tax. This announcement has triggered a sharp response from its trading partners, mainly Russia while others are contemplating their response. 

The EU’s economy commissioner, Paolo Gentiloni clarified saying that it is an "environmental policy tool, not a tax, not a tariff" and added "it is in line with and compliant with international trading rules".

World’s first carbon border tax: Key Highlights

• The plan to introduce the world's first major climate import tariff by 2026 will see a cost placed on carbon emissions through a carbon border adjustment mechanism (CBAM).

• The mechanism will impose a tax linked to carbon prices on an array of products such as imported steel, aluminum, fertiliser and cement.

• The EU’s economy commissioner said that the policy is aimed at companies not countries and emphasised they want to co-operate as widely as possible with other governments on carbon pricing.

• Economists are regarding the EU measure as a critical test case and are closely watching to see whether it succeeds in incentivising lowering of emissions. 

Which nation is likely to be impacted by the EU's carbon border tax?

• The carbon border tax will mainly impact the aluminum producers, led by those in Norway, Russia and China, due to the heavy energy intensity involved in the process. 

• Russian, one of the EU's major trading partners hit out at the proposal saying that it stands to lose $7.6bn from the tax mechanism, making the nation potentially one of the biggest losers from the measures. 

• Russia is Europe’s biggest supplier of carbon-intensive products including coal, oil, rolled steel and aluminum, which was worth almost €10bn in 2019. 

• The total EU imports from Russia amounted to €145bn in 2019, making the bloc Russia's largest trading partner. On the other hand, Russia is the EU’s fifth-largest trading partner.

• Dmitry Peskov, President Vladimir Putin’s spokesman said that “The prospect of an additional financial burden for our economy and our companies is extremely unpleasant."

• The other nations to be most affected by the carbon tariff tax would include Turkey, which accounts for a third of Europe’s cement imports and 12 percent of metal and China, which accounts for 14 percent of metal imports.

• China has also been vocal about its opposition to the EU’s carbon border tax. The nation has, however, been also taking steps to introduce carbon pricing and it had launched nationwide emissions buying and selling scheme for the power sector last week. 

Background

The European Union prepares to develop into the primary bloc on this planet to impose a levy on carbon-intensive items at its border. 

The EU’s economy commissioner, Paolo Gentiloni stated that the carbon border proposal was accepted positively by the finance ministers within the G20, who had met in Venice earlier this month. 

The democrats within the US had also advocated for a carbon border tax last week. Canada has also been debating on such a move. 

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