World’s First Carbon Import Tax Approved by EU Lawmakers

The carbon tax legislation is part of the European Union’s broader “Fit for 55 in 2030” plan — a package of bills aimed at reducing the bloc’s greenhouse gas emissions by at least 55 percent of their 1990s levels by 2030.

Nearly two years in the making, the tax has raised concerns among U.S. companies in anticipation of the new bureaucratic hurdles they will face when exporting goods to Europe, The Wall Street Journal reported.

At the core of the broader EU package is a so-called “Carbon Border Adjustment Mechanism” (CBAM), which seeks to incentivize non-EU nations to increase their climate ambitions, according to the European Parliament.

The mechanism also aims to ensure that EU climate progress is “not undermined by production being relocated from the EU to countries with less ambitious policies,” a statement from the legislature said.

The parliament adopted the rules for the measure in a 487-81 vote on Tuesday, with 75 abstentions, after reaching a deal on the subject with individual EU countries in December.

Goods covered under the mechanism include iron, steel, cement, aluminum, fertilizers, electricity and hydrogen, as well as some downstream products like screws and bolts.

Companies that import these products into the EU would need to purchase “CBAM certificates” to make up the difference between the carbon price paid in the country of origin and the price of carbon allowances in the EU, according to the parliament.

The law will be phased in from 2026 until 2034, as the EU’s existing carbon trading system — which enables manufacturers to offset emissions — is phased out, the legislature said.

The vote has stoked fresh calls in the U.S. for a similar type of tax, with manufacturers arguing it is difficult to compete with imported goods that have a weightier environmental footprint, the Journal reported.

Meanwhile, the White House has asked the EU to give American exporters credit for recent changes in U.S. climate change regulations, which incentivize clean energy but don’t establish a price for carbon, the newspaper noted.

The EU, however, has refused to budge on this matter, arguing only exporters that put a specific price on carbon can benefit from such discounts, the Journal reported.

Before the bill becomes law, it will still need the final approval of EU countries, whose governments will evaluate the rules in the coming weeks.