Reform, Innovation and Renewable Energy
Critical Issues in Environmental Taxation series
Edited by Natalie P. Stoianoff, Larry Kreiser, Bill Butcher, Janet E. Milne and Hope Ashiabor
Chapter 5: CO2 in goods
The EU Emissions Trading Scheme (EU ETS), launched in 2005,has not achieved its goals. It has not been attractive to other geographic areas and global emissions have increased. Leaving aside the recession, Europe did not consume less but produced less, importing goods from emerging countries with high carbon intensity. In addition, CO2 permits reached a price level that has been insufficient to encourage research and investment. The ETS has become a kind of (low) negotiable energy tax burden on EU business competitiveness in a global market. The World Trade Organization (WTO) (and international policy opportunities) does not allow the imposition of an unjustified carbon border tax. For trading within the European market, the proposal in this chapter is to consider CO2 as a raw material used in the production of goods, regardless of where they are produced and enhance it in the quantity ‘contained’ in a single product as a result of the energy mix. The CO2 cost would be administered as a charge converging in value-added tax (VAT). This approach allows an enhancement of CO2, to be free from market fluctuations and from recession, if the CO2 cost is set at an appropriate level to encourage research and low-carbon investments in EU and non-EU territories. Because of the greater efficiency of the European energy mix it would also create competitiveness in the energy costs of production. This approach –adopted unilaterally by Europe – complies with WTO rules, as long as it allows industries outside the EU to demonstrate their production energy mix. If European standards are respected, industries would be exempted from the additional charge on emissions within the VAT. In the extremely complicated context of energy and industry – the United States moving towards energy independence thanks to shale gas; China and India increasing their market shares; Organization of the Petroleum Exporting Countries (OPEC) countries adopting ‘strong’ international policies on the cost of crude oil – Europe needs to take advantage of the low carbon intensity of its industrial system, especially now that the abandonment of free CO2 permits will inevitably increase production costs. This could be a way to create conditions for lower global emissions and increase environmental benefits faster than any global agreement.The aim is not to lower EU environmental objectives but to urge the rest of the world to follow Europe.
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