An Alternative to the EU Border Tax on Carbon

The EU Green Deal gives a target to reach carbon neutrality by 2050. However, if the European Commission (EC) wants to gain credibility, it must offer some concrete actions where deliverables can be achieved by the end of its five-year term in 2024, with today’s state-of-the-art technology.

This entails the exclusion of unavailable, out-of-reach or too pricy technology for final customers. If not, EU member states might have to face social unrest, such as the French yellow vest movement, that do not want their cost of energy to rise.

The emergency is in fact to get rid of coal as fast as possible because this is the worst polluting fossil fuel and it can be replaced quite easily. But then, the alternative fuel, gas, must be beyond reproach. In other words, its measured greenhouse gas (GHG) footprint must be capped to an acceptable level.

As part of the Green Deal, the EC could consider implementing a to-be-designed World Trade Organization (WTO) compatible tax on the content of carbon in the goods it imports, that could be viewed by non-EU countries as a hidden way to implement protectionist measures. So, instead of a risky untested WTO compatible carbon border tax, Brussels should quickly get rid of coal; ban coal imports; and move to address emissions across the EU’s gas supply chain.

Setting an industry-defined standard for gas production inside the EU would have a marginal effect on worldwide emissions since European production is very small and declining. But by setting emissions performance standards at home, the EU could not only become the first place in the world to pioneer this system, but also, and more important, set worldwide criteria that will spur practices respectful of the climate and of the environment in the energy sector. The EU having a standard at home would then be in a position to accept only that non-EU gas that meets the set criteria.

Gas companies willing to sell gas into Europe will have to certify their methane emissions. Companies will have time to do this before the legislation is implemented. This will generate extra costs, but some shareholders may be willing to pay them to make sure that the gas produced by their company is clean enough to meet EU requirements, so they retain revenues while improving their corporate image.

If the EU were to put this system in place, it would have an impact on global gas production. It must be kept in mind that the ECwill kill two birds with one stone: (i) reduce GHG emissions worldwide; and (ii) increase its soft power by exporting its regulation outside of its territory. The last aspect has always been Europe’s greatest strength. Last but not least, nothing prevents other countries outside the EU from reproducing the European model. Such a regulation can be implemented now and should have no extra cost for European customers as most companies are claiming they are already investing to reduce methane leakage.

As both science and technology push rapidly the boundaries of what is feasible fast, the first objective of the regulation would be to require robust monitoring, reporting and verification based on a harmonized EU methodology which would be mandatory on all those selling gas in the EU market. These measurements and data could be part of a broad Earth monitoring program managed under the new Directorate-General for Defence Industry and Space.

As always, the devil will be in the details to implement such a regulation. But if the EU really wants to achieve some concrete results to reduce GHG emissions worldwide by 2024, instead of a risky untested WTO compatible carbon border tax that could spark a trade war, it could more efficiently ban coal and set a maximum level on methane emissions from upstream gas production.

Thierry Bros is an Associate for the Energy Project at theDavis Center for Russian and Eurasian Studies.

Aurélie Bros is a lecturer at Harvard University and a Senior Fellow at the Davis Center for Russian and Eurasian Studies.

A longer academic version was published on 7 February and is available at https://daviscenter.fas.harvard.edu/news/gas-lighthouse-1-what-should-eu-do-regarding-decarbonization