Germany
In a recent
publication, the Nova Institute discussed about CBAM (carbon border adjustment
mechanism) as a tax on fossil carbon. The proposed tax is a simple and
effective tool to achieve the goals of CBAM.
As
an effort towards climate neutrality by 2050, the European Union (EU) is
working on the implementation of a carbon border adjustment mechanism (CBAM),
which would put a carbon price on imports of certain goods from outside the EU.
It is in line with the climate goals of the EU and supports the decarbonisation
of the energy sector and the transformation of the chemicals and derived
materials sector from fossil to renewable carbon.
The
European Union committed to achieving climate neutrality by 2050 via the
European Green Deal in 2019. Recently, there has been increasing support
towards the CBAM to create a level-playing field for competitors importing into
the internal European market and producing in countries that have set their
sights lower than the European Union. The goods imported into the EU would have
to bear the same costs for carbon emissions as the ones produced in
Europe.
The
most frequently suggested option is to tax imported goods according to the
greenhouse gases emitted during their production, mostly referred to as a CO2 tax.
In the new nova-Paper #15, experts from the German Nova-Institute present a
tool for elegantly pricing the true cause of global warming. A tax on fossil
carbon at the feedstock level, also called a “fossil carbon tax” provides
several advantages over a CO2 tax as an end-of-pipe measure.
Carbon enters the economic cycle through the use of coal, oil and natural gas
and is usually emitted as CO2 (after incineration) but can also
be released into the atmosphere in other forms, like CH4. Through
levying a price on fossil carbon, the cause of global warming could be priced
elegantly, fairly, and universally.
The
paper published by Nova discusses the advantages of a fossil carbon tax in
further detail. A fossil carbon tax solves a number of central issues
considered a hurdle for the implementation of a CO2 tax, such
as complexity, carbon leakage, eligibility to World Trade Organization (WTO)
rules or taxation coverage of all sectors in the economy.
The
fossil carbon tax can be implemented regionally without endangering
competitiveness, as a retroactive taxation or a reimbursement are possible on
import and export. With its focus on the raw materials, it is a much simpler
approach than an end-of-pipe solution that looks at CO2 emissions.
And a fossil carbon tax would both encompass the energy sector and also cover
the chemical and material sectors properly. In these sectors, the demand for
embedded carbon will continue to increase in the future, and a fossil carbon
tax would be a strong tool to work towards a comprehensive carbon management
promoting renewable carbon.
The
paper concludes that the proposed fossil carbon tax provides a simple,
effective and elegant tool to achieve the goals of the CBAM and that is in line
with the climate goals of the EU. It is easier to implement and control than
the CO2 tax that covers all sectors that use fossil resources,
ensures the continued competitiveness of the European industries, and will have
a larger effect on climate change mitigation.
In the end, the experts of the Nova Institute are strongly convinced that a fossil carbon tax provides better incentives than a CO2 tax to progress from the use of fossil carbon to the utilisation of the three sources of renewable carbon: biomass, CO2 and recycling.
Source: Nova Institute Press Release
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