EU commissioner dismisses proposal for carbon tax

Publish date: December 22, 2006

BRUSSELS – EU trade commissioner Peter Mandelson labelled French Prime Minister Dominique de Villepin’s controversial call for countries that refuse to join international efforts to cut greenhouse gas emissions to face a European carbon tax on their exports as “not good politics.”

Instead of implementing punitive measures against countries that have not ratified the Kyoto Protocol, Mr Mandelson mentioned his wish to widen and open global markets in the key technologies for addressing climate change. The trade commissioner also stressed the European Union’s (EU) current potential to gain a competitive advantage in being a leader in adapting to climate change “by moving decisively in the direction the market is inevitably going to take, and getting ahead of the curve.”

In his podcast speech of December 18th 2006, the trade commissioner asserted that “not participating in the Kyoto process is not illegal. Nor is it a subsidy under WTO [World Trade Organisation] rules.” Noting that dealing with climate change is an international challenge, Mr Mandelson said above all that it requires international co-operation and that “coercive policies will harm” this process.

The French proposal
Last month, Mr de Villepin declared that he would like to study – with France’s European partners – the principle of a carbon tax on the import of industrial products from countries that refuse to commit themselves to the Kyoto Protocol after 2012. Villepin’s assertion came quickly in the wake of the release of the British Government’s now famous Stern review on the catastrophic economic impact of global climate change.

Bellona advisor on energy, Aage Stangeland, supported the French minister’s proposal, noting that “CO2 emissions are a global problem, which requires solutions that go beyond the idea of a market limited to only a small region of the world, such as the EU. The French Prime Minister’s proposal is therefore a good idea to ensure that countries not participating in Kyoto have to cut their emissions in order to deliver compatible products and services.”

“The market is not the problem,” adds Stangeland, “the problem is how we regulate the market, and we need regulations that can efficiently reduce CO2 emissions.”

Mr Mandelson, however, questioned how such a tax would be implemented, asking how the EU would choose which goods to target. For example, China has ratified the Kyoto Protocol but does not have any Kyoto targets because of its developing country status. The US has not ratified the Protocol, but states like California have ambitious climate change policies.

The ETS, the source of the debate
This debate on the carbon tax comes as EU industrialists argue that the European Emissions Trading Scheme (ETS) has placed EU companies at a disadvantage compared with global competitors who do not have the same constraints.

The ETS, launched on January 1st 2005, is based on the assumption that creating a price for carbon through the establishment of a carbon market offers the most cost-effective way for EU countries to meet their obligations under the Kyoto Protocol and move towards a low-carbon economy.

Mr Mandelson emphasised that “we have to see climate change as an opportunity agenda not as a burden to be shouldered. We should have confidence that if we lead, others will have no choice but to follow.”

A carbon market in the US?
Indeed, others may well soon follow. In the United States (US), a rapidly growing number of companies are preparing for what they foresee as a booming market: carbon trading. As reported in the International Herald Tribune (IHT), most experts consider that nationally imposed CO2 emission limits will come into effect in the US between 2010 and 2012.

For now, carbon trading in the US – on the Chicago Climate Exchange – is voluntary. However, once national rules are implemented, the market will explode. As quoted in the IHT, “this cottage industry has the potential to become one of the largest commodity markets in the world, “ said Emma Stewart, director of research and development at Business for Social Responsibility, a non-profit consulting and research organisation.

American companies seem to consider that the possibility to trade carbon credits could take away some of the burden of having to comply with upcoming legislation.

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