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EU Imposes The World's Largest Carbon Tax Scheme, Inflationary Madness Sets In

Tyler Durden's Photo
by Tyler Durden
Tuesday, Dec 20, 2022 - 11:30 AM

By Mish Shedlock of MishTalk

Carbon Border Adjustment Mechanism 

To prevent "carbon leakage" the European Parliament Reached a Deal on a Carbon Border Adjustment Mechanism, CBAM for short. 

An EU Carbon Border Adjustment Mechanism (CBAM) will be set up to equalise the price of carbon paid for EU products operating under the EU Emissions Trading System (ETS) and the one for imported goods. This will be achieved by obliging companies that import into the EU to purchase so-called CBAM certificates to pay the difference between the carbon price paid in the country of production and the price of carbon allowances in the EU ETS.

CBAM will cover iron and steel, cement, aluminum, fertilizers and electricity, as proposed by the Commission, and extended to hydrogen, indirect emissions under certain conditions, certain precursors as well as to some downstream products such as screws and bolts and similar articles of iron or steel.

Before the end of the transition period, the Commission shall assess whether to extend the scope to other goods at risk of carbon leakage, including organic chemicals and polymers, with the goal to include all goods covered by the ETS by 2030. 

CBAM is part of the “Fit for 55 in 2030 package", which is the EU’s plan to reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels in line with the European Climate Law.

Spotlight Africa

Let's tune into a Tweet Thread by Faten Aggad Senior Advisor Climate Diplomacy @AfricanClimateF.

No Waivers 

Resource Shift

"The only effect CBAM would have is a resource shift whereby clean energy capacity in already under-resourced countries will be shifted for export production while industry aimed at local consumption and energy access will depend on dirty fuels."

The EU Goes Rogue on Climate Policy With CBAM

The Wall Street Journal reports The EU Goes Rogue on Climate Policy With CBAM

 

The CBAM as drafted would disadvantage the U.S., especially our small businesses and manufacturers, even though the U.S. and EU have nearly identical environmental performance and emissions standards. Particularly problematic in the EU agreement is the obligation for EU importers to pay the difference between the carbon price paid in the country of production and the price of carbon allowances under the EU’s emissions trading system.

Many economies, including the U.S., rely on regulations under statutes such as the Clean Air Act to limit emissions. The EU’s proposal doesn’t credit the cost of domestic regulation when the border tax is applied. The failure to recognize the implicit costs of U.S. regulation would inevitably lead to double emission taxation on exporters.

Neither a Tax Nor a Tariff

The EU says CBAM is neither a tax nor a tariff. It's an "adjustment mechanism" to "level the playing field".

Yeah right. 

The US objections to CBAM are amusing as were the EU objections to Biden's horrendously names Inflation Reduction Act that will do anything but reduce inflation. 

The EU is Very Worried About Biden's Inflation Reduction Act (IRA)

On November 30, I commented The EU is Very Worried About Biden's Inflation Reduction Act (IRA)

Under WTO rules, much of Biden's IRA is really an illegal subsidy. The EU cannot do in 5 years what the US can pass in a session if one political party is in clear control.

In addition to Biden's free clean energy handouts, the US is largely energy independent while the EU desperately needs Russian energy.

All the EU can do is bitch to the WTO and that will take many years as well. 

Importantly, Germany is upset because the US is handing out free money clean energy subsidies despite WTO rules and it can't.

And not having learned anything from Russia, Germany is now cozying up to China.

Hoot of the Day 

Please consider Europe Tries to Stop Exporting Its Emissions.

Given the self-imposed cost of going green, the CBAM explicitly looks to make European manufacturers more competitive with foreign producers. Europe says that’s fair. In compliance with World Trade Organization rules, it isn’t discriminating against any particular country, just leveling the playing field.

But this means top trading partners like the U.S. will now face a steep carbon bill when docking at the ports of Rotterdam or Antwerp. 

The U.S. has attempted to discourage the CBAM. Climate envoy John Kerry warned Europe against proceeding with the border tax, saying last year that “the United States has strong feelings about not having excessive regulation.”

Biden has "strong feelings about not having excessive regulation,” says John Kerry. What a hoot!

CBAM Quantitative Assessment

Please consider the The Global Impact of a Carbon Border Adjustment Mechanism: A Quantitative Assessment by the IMF. Amazingly the IMF got something right.

  • Carbon border tax has been debated in many countries over the past decade, and remains highly controversial. While CBAMs have a global impact by design, the scale of its “spillover effects” on other countries is seldom studied. There are concerns that a unilateral EU CBAM will not only distort international trade, but also shift the burden of addressing climate change to developing countries.
  • Countries that rely on carbon-intensive exports to the EU will be disproportionately impacted by the CBAM. Welfare losses in developing countries like Ukraine, Egypt, Mozambique and Turkey range between $1 billion to $5 billion, which are significant relative to their gross domestic product (GDP). Mozambique’s economy would shrink by 2.5 percent due to decreased demand.
  • The CBAM could worsen income inequality and welfare distribution between rich and poor economies.
  • At its broadest implementation, the CBAM could result in an annual welfare gain in developed countries of $141 billion, while developing countries see an annual welfare loss of $106 billion, compared to a baseline scenario.

We need to stop right there because the IMF solution is reparations and an “Equitable Decarbonization Fund” (EDF) to developing countries.

Tit for Tat?

Perhaps CBAM is the EU's way of striking back at the US for Biden's IRA.

More likely, it's just economic stupidity across the board as noted in Al Gore and John Kerry Aim to Hijack the World Bank for Climate Agenda

On November 12, president Biden's climate ambassador, John Kerry, made this statement:

"It's a well-known fact that the United States and many other countries will not establish…some sort of legal structure that is tied to compensation or liability. That's just not happening."

Guess what happened. 

For the answer, please consider President Biden, the UN, and the Climate Lobby Seek to Spread More Fossil Fuel Misery

Three Things CBAM Will Do

  1. Increase inflation
  2. Reduce global trade
  3. Hammer developing countries 

And the one thing it will not do is much of anything, if anything at all, for the environment.

50 Years of Dire Predictions

Finally, Let's Review 50 Years of Dire Climate Forecasts and What Actually Happened

Many of the predictions are outrageously funny, especially AOC's 2019 announcement that the world will end in 12 years.

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