[The Editors' Verdict] Implications of the EU’s Introduction of the Carbon Border Tax

Published 06 Aug.2021 13:11(KST)

The European Union (EU) announced plans to introduce a carbon border tax system on the 14th of last month. This is part of the ‘Fit for 55’ plan, which aims for carbon neutrality by 2050 and a 55% reduction in greenhouse gas emissions by 2030 compared to 1990 levels, incorporating the carbon border tax system.

The carbon border tax system is designed to impose carbon emission costs on products imported into the EU if their carbon emissions exceed those of products produced within the EU. After a two-year grace period starting in 2023, the system will be fully implemented in 2026. It will initially target five categories: steel, aluminum, cement, electricity, and fertilizers, but the scope will gradually expand to include all products. The United States is also preparing legislation similar to the EU’s carbon border tax.

According to a report published last December by the Korea Institute for International Economic Policy (KIEP), if the EU applies a rate of 30 euros per ton of carbon dioxide, South Korea will incur additional costs of about 1.2 trillion won annually. This equates to an additional tariff rate of 1.9%. China will bear roughly ten times the cost of South Korea, and Russia and India will also face significant additional expenses. Western countries, which have enjoyed prosperous lives by emitting large amounts of carbon during the Industrial Revolution over the past 200 years, are now shifting the burden of excessive carbon dioxide emissions onto emerging countries as the issue has come to the forefront.

The introduction of the carbon border tax, expected to generate annual tax revenues of around 10 billion euros, is seen as an investment to revive the faltering European economy. This is why EU member states had little disagreement during the agreement process. At the same time, it appears to have been coordinated with the United States, which aims to check China’s influence. Recent frequent abnormal climate phenomena favor the EU’s position. Unprecedented heavy rains in Germany and Belgium have caused hundreds of deaths or disappearances. The western United States and Canada have experienced 50-degree heatwaves and wildfires, and China and Japan have suffered from concentrated heavy rains.

Emerging countries are highly dissatisfied with the EU’s unilateral measures but have no choice but to accelerate the transition to a decarbonized economy and use advanced countries’ green technologies. The benefits will go to companies within the EU leading green growth, and global supply chains may be reorganized around Europe. With the change in game rules, there is a possibility that the global trade order will be reshaped. Meanwhile, this can be seen as a stepping stone for the EU to regain leadership from China and emerging countries, which have maintained manufacturing advantages based on cheap labor and lax environmental regulations. The EU will gain not only high tax revenues but also the effect of raising the entry barriers for competitors into the European market and protecting European manufacturing based on European green technologies.

Carbon is now a weapon. Whether the carbon border tax system will proceed smoothly remains uncertain, but efforts to reduce carbon emissions are essential. Attention is being paid not only to renewable energy sources such as solar and wind power but also to carbon-free energy sources like hydrogen and nuclear power. South Korea, which relies on exports to sustain its economy, is in a critical situation. Preparations should have been thoroughly made since the call for green growth over a decade ago, but political influences have prevented the government from looking ahead, even causing setbacks in the otherwise sound nuclear power sector. Currently, South Korea is struggling to keep up with rapidly changing global climate conditions. The government must avoid political interference, establish long-term plans, and steadily push them forward.