06 Oct 2010

Decision Time for Europe on Climate Change: Keep the head buried in the sand or get tough?

Daniel Gros / Christian Egenhofer

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Any strategy by the EU towards making a meaningful contribution to the global effort of reducing GHG emissions needs to address the core of the problem: ‘coal’, or, more accurately, abundant coal. The failure in the United States, a rich economy with only a moderate dependency on coal, to introduce even a moderate carbon tax, means that it certain that no commitment will be forthcoming for the next generation from China, which is still much poorer and depends even more heavily on indigenous coal (and produces twice as much as the US). And after China, India looms as the next emerging coal-based industrial superpower. This commentary finds that the most promising route available now to the EU would be to go it alone and impose an import tax on the CO2 content (i.e. including the embedded carbon) of all goods imported from countries that do not have their own cap-and-trade system or equivalent measures. Such a carbon import tariff would improve global welfare because it would transfer, at least partially, via trade flows, carbon pricing even to those parts of the world where governments have so far refrained from imposing domestic measures of any magnitude.

Daniel Gros is Director of CEPS, and Christian Egenhofer is Senior Fellow at CEPS and Head of the Climate Change and Energy research programme.