How will the EU collect its carbon tax?
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On 14th July, the European Union is to provide an explanation of how its Carbon Border Adjustment Mechanism, CBAM, or more simply put, a carbon tax, is going to be put into effect. The tax is to be applied to all suppliers of raw materials from countries outside the EU.

Documents setting out the mechanisms of the carbon tax are to be made public by the European Commission on Wednesday. But the site Euractiv has already published a draft version which enables readers to draw their initial conclusions on how the carbon tax will be assessed and collected.

  • For the moment, the CBAM mechanism does not apply to the key items of Russian resource exports – oil, gas, petrochemicals and petroleum products. Its provisions will apply only to producers of steel, aluminium, fertiliser, electricity and cement. The European Commission, however, reserved the right to expand this list in the future.
  • “Gradually, all sectors of production and all industrial enterprises will be drawn into the process of decarbonisation,” said Anatoly Zolotukhin, head of the Institute of Arctic Oil and Gas Technology at the Gubkin National University of Oil and Gas. “What will be important is observing the principle of fairness under which the carbon tax will be proportionate to the energy content of production.”
  • As this is essentially a continuation of the European Union Emissions Trading System (EU ETS), the CBAM mechanism will not be applied to countries taking part in that scheme but which are outside the EU — Iceland, Liechtenstein, Norway and Switzerland. How it will apply to Great Britain remains an open question: Given its exit from the EU, it is not yet clear whether its own system of carbon units will be integrated into the EU system.
  • “The CBAM mechanism is intended not only to stimulate producer countries to modify their methods by reducing the carbon footprint in what they produce, but also to keep European producers from losing their competitivity as a result of far-reaching climate regulations in the EU and their absence in other countries,” Zolotukhin said.
  • A regulator is to be set up in the EU whose job it will be to certify “carbon content” in goods. Every year, by 31st May, producers will have to present data with details of shipments to the EU of steel, aluminium, electricity and cement and the accompanying total volumes of CO2 emissions.
  • For every tonne of CO2, a supplying company will have to obtain a CBAM certificate, with the cost determined by the price of carbon on the EU RTS exchange – from July 2020 to July 2021, this  price doubled from $28 per tonne to $57 per tonne.
  • Companies failing to provide reliable data on CO2 emissions will be subject to a fine equal to three times the purchase price of the required certificates.
  • The draft document contains no special provisions for developing countries – and this, Zolotukhin says, amounts to a threat to make those countries lose their competitive advantage.

In 2019, according to the London-based Centre for European Reforms, Russia accounted for a little more than $8 billion of Europe’s imports of steel, aluminium, fertiliser and electricity, while Turkey accounted for a little more than $5 billion and China a little less than $4 billion.

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