Germany should support unbureaucratic model for carbon border tax – researchers

The German government must urgently take position on the future design of the EU's carbon border adjustment mechanism (CBAM) and should support the proposal for an unbureaucratic climate contribution model that can be implemented rapidly, write Karsten Neuhoff and Roland Ismer from the German Institute for Economic Research (DIW) in a commentary in business daily Handelsblatt. A CBAM design applying standardised carbon intensities to traded materials using existing excise structures is a pragmatic approach that could create effective price incentives for low-emission investments and address concerns about carbon leakage risks, the authors argue. Given the disadvantages of other options, "the German government should quickly and clearly advocate the excise option. This would effectively price emissions without weakening Europe's economic power. And no further decade would have to go by unused."

Neuhoff and Ismer write that the European Commission’s proposal is insufficient for effective and rapid emission reductions, while the European Parliament's call for a more rapid implementation of the original CBAM design would meet strong industry resistance due to carbon leakage concerns. A disadvantage of the climate contribution model that would have to be accepted is that it doesn't create international incentives for emission reductions or CO2 prices, the authors argue, adding that the Commission’s current proposal also postpones international incentives.  

The European Union is taking steps towards introducing a CBAM, an instrument that has been hailed as a stimulus for climate action but also branded as a way to spark new trade wars between the bloc and its trading partners. As the EU is pursuing a higher climate-neutrality target and a green overhaul of its entire economy, the mechanism that has importers pay if their product has a higher carbon footprint than their European counterparts leaves many industries and non-EU governments concerned.