European politicians and lobbyists, in their pursuit to invent new tools to achieve carbon neutrality “during the lifetime of this generation”, increasingly resemble Victor Frankenstein, who created the Monster from dead matter, but lost control over it.
The main challenge for European green policy today is the understanding that the ambitious goal of carbon neutrality by 2050 cannot be achieved through economic incentives (the carrot) and requires active government intervention (the stick). The problem of containing the rise of the Earth’s temperature is global in nature and cannot be solved through the unilateral actions by the EU. But the eurobureaucrats intend to use the stick primarily against the “irresponsible” third countries reluctant to accept the dogmas of the European “code of the builders of bright carbon-free future”, which results in a unipolar approach to climate regulation.
One of the elements of this confrontation, where the EU’s policy of double standards had manifested itself, was the discussion of the so-called Carbon Border Adjustment Mechanism (CBAM) in the European Parliament on March 10, 2021
The EU is a major importer of products with high carbon footprint such as cement, steel, aluminium, glass, chemicals, fertilizers, and refined petroleum products. “Imported” greenhouse gas emissions from the consumption of these products significantly exceed emissions from domestic production of the same products in the EU. According to CBAM’s proponents, the imposition of a special tariff on importers (timidly cast as an “adjustment mechanism”) should create incentives for the producers to reduce the carbon footprint of their products, and should also prevent the migration of European manufacturers of goods with a high carbon footprint (so-called carbon leakage) to the jurisdictions that do not use carbon pricing or emission trading schemes. At the same time, in terms of its economic essence and administration mechanism, CBAM is no different from the classic protectionist trade tariff. The European Commission is trying to shield this tariff from the rules of the World Trade Organisation (WTO) and possible arbitration; it insists that the CBAM’s main purpose is concern for the climate. However, as the discussion in the European Parliament has shown, the climate agenda is not at all the main motive, it is only being used to cover up and protect the interests of specific political and industrial groups.
It is worth noting that the success of the EU in the fight against CO2 emissions was extremely modest until the mid-2000s. Russia, which experienced an acute economic crisis and fundamental shifts in its economic structure after the collapse of the USSR (away from heavy industry and towards service sector), sharply reduced emissions in the 1990s, way ahead of the European Union. It has nearly reached its targets under the global climate agreements long before the EU started to pose as a saviour of humanity from the climate catastrophe. (See Fig. 1)
Fig. 1 Reduction of CO2 emissions relative to 1990. 1991-2019 and goals for 2030
Percent, 1990 = 0
Russia - commitment under the Paris Agreement
EU - 2030 goal
Source: Author, data from BP Statistical Review of World Energy, 2020, Government of the Russian Federation, European Commission
Under the auspices of the current EU Emissions Trading System (ETS) many European industrial companies are able to receive free emission permits (the so-called CO2 mandates) provided their international competitiveness could be hurt if they had to pay for emissions in full. Besides, the European CO2 prices had been at extremely low levels for a long time, especially from 2012 to 2018, in a clear indication of a policy failure with regards to carbon regulation on the continent. Recently, the price of CO2 has increased to the level of circa €30/tonne, which is still insufficient to meet EU decarbonization targets (see Fig. 2)
Fig. 2 CO2 prices in the EU (Euros per tonne of emissions).
Success in reducing CO2 emissions in the EU, by 22% between 2006 and 2019, could be attributed to the allocation of huge subsidies for renewable energy sources on the continent and the closure of many “dirty” industries in Europe due to their lack of competitiveness, rather than to the success of ETS policies. Europe’s share in global CO2 emissions in 2019 remained at almost 10%, which is more than double Russia’s share (4.5%). At the same time, as similar industries in China have become the new “workshop of the world” amid globalization, China’s CO2 emissions during 2006-2019 increased by 47%, and China’s share in global CO2 emissions in 2019 reached 29%. (BP Statistical Review of World Energy, 2020)
Currently, the EU, in an effort to meet its climate targets for 2030, has begun an overhaul of the emissions trading system. The only way to make it work is to stop the practice of giving free emission permits to domestic producers (which is similar to corrupt practices of selling indulgencies) and to sharply raise CO2 prices to €90-100 per tonne, i.e. almost three times their current levels.
The problem is that, in the absence of similarly high CO2 prices in other countries, European producers would become uncompetitive internationally. This is where the EU bureaucrats intend to use CBAM as a “magic wand-type” solution that would level the playing field and correct the terms of trade by charging importers with a tariff. Thus, the EU is trying to export its legislation, impose a tax on suppliers over a wide range of products from abroad and make third countries pay for the Europeans’ inability to meet their climate commitments.