The European Union should go ahead with plans to charge a "carbon tax" on developing countries which do not make efforts to reduce their carbon dioxide (CO2) emissions, dpa cited a study released today as saying. The EU has taken the lead in the fight against climate change, by pledging to cut 20 per cent off its emissions by 2020, as compared to 1990 levels, and by introducing the Emission Trading System (ETS), a cap-and-trade scheme which forces firms to buy polluting permits at auction. But so far the bloc has failed to convince other major polluters to follow in its footsteps. Some EU members such as France and Italy suggest it could do so by resorting to the carbon tax. The Brussels-based Centre for European Policy Studies (CEPS) think-tank agreed, saying that "a CO2 border tax or import tax would increase global welfare" by providing an incentive to lower emissions. Its report said that without an accompanying border climate levy the EU's ETS "risks being ineffectual," because it would push heavily polluting industries to move outside the bloc to places with no limits on CO2 levels, contributing to the so-called "carbon leakage" phenomenon. Responding to a common criticism of the idea, CEPS said a carbon tax could be introduced without breaching World Trade Organisation (WTO) anti-protectionist rules, since they allow for exceptions in case of measures "relating to the conservation of natural resources." The carbon tax would fall on imports from "countries that do not have a cap and trade system or equivalent measures," CEPS underlined. The US would be exempt, as it is expected to introduce its own version of a cap-and-trade system in the near future. The think-tank calculated that the levy should be "much higher" than the 3-4 per cent tariff the EU currently charges under its most favourable trade regime. The actual amount would depend on the climate-friendliness of each country's industry: a reasonable tariff for Brazil would amount to 4 per cent, CEPS said, while energy-inefficient Russia would have to pay as much as 16 per cent. China, the world's largest emitter of CO2, would fall somewhere in the middle, with tariffs around 8 or 9 per cent. The "carbon tax" idea, however, remains controversial. Last week the EU's Climate Action commissioner, Connie Hedegaard, admitted it was a "tool in the toolkit" of climate change policies, but appeared unconvinced about its feasibility. "How are we going to do it? If you think it through it is extremely complicated," she said. The CEPS study acknowledged that developing nations adopting CO2 reduction policies would represent "a first-best solution," but added that the threat of a carbon tax by the EU - and possibly by the US - "could make the first-best solution actually possible."
