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It’s been thirty years since Finland first implemented carbon pricing in 1990. Over the years, other European countries have followed through, charging different prices from less than USD 1 per metric ton of carbon emission like Poland and Ukraine to more than USD 100 like Sweden, which currently holds one of the most expensive carbon taxes in the world. These taxes also vary in standards of what kind of greenhouse gasses are being taxed on. For example, Spain only taxed on fluorinated gases, which account for only 3% of the country’s total greenhouse gas (GHG) emissions. While Norway’s carbon tax covers more than 60% of their overall GHG emissions. Generally, carbon taxes can be applied to GHG like carbon dioxide (CO2), methane, fluorinated gases, and nitrous oxide.

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The European Union (EU) has since followed through by applying a carbon tax for the local manufacturers in 2005. It taxed around USD 68 per metric ton of carbon emission through the Emission Trading System which sets an annual limit on the emissions and creates a market for emissions permit trading. However, this regulation has been claimed to lead to carbon leakage, in which EU manufacturers would be losing their sales to overseas manufacturers with more lenient climate change regulations. To overcome this, as well as to promote a more sustainable and environmentally friendly approach to manufacturing and supply chain management, the EU has come up with the European Green Deal first introduced in December 2019. The deal includes the EU’s main objective to be the first climate-neutral continent by 2050 as well as reaching a 55% of emission reduction by 2030.

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One of the steps taken by the EU is by applying a carbon border tax-applying carbon pricing to all goods, materials, and products imported to the EU instead of just taxing the local manufacturers. Even though the regulations were applied as an environmental approach, it was also seen as a ‘safeguard method’ for companies exiting the EU to move to countries with less climate change policy who are trying to sell their goods back to the region..

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The regulations were also expected to further impact the whole global value and supply chain as the EU is one of the biggest market regions. It will also change companies’ competitive advantages and encourage manufacturers to be more sustainable and reduce their carbon footprints as companies who successfully measure their total emission in the entire supply chain and manage to lower their CO2 emissions will need to pay fewer taxes compared to those who failed to comply. It was also expected to ramp up manufacturers, buildings, and transportations industries to put more effort into their sustainability practices. At the same time, the carbon tax for local manufacturers applied in 2005 will be phased out as newer ones are established and give more pressure to EU manufacturers to speed up their carbon reduction processes.

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The EU carbon border tax would start to be implemented in stages starting with the transitional stage between January 2023 to December 2025. During this period, companies are expected to start finding the most effective method for them to independently measure carbon footprints within their whole operations mainly for materials such as steel, aluminum, cement, fertilizers, and electricity industries. The border tax would be effective since January 2026 as companies are expected to start purchasing their import permits (a.k.a the carbon tax) while taxing for other products like petrochemical, glass, and paper would later be introduced. The initial rate would be around USD 74 per metric ton and is expected to gradually increase up to approximately USD 113 per metric ton by 2030. Around 15-30% of price surges for carbon-intensive producers in China, Russia, and India are anticipated. However, the highest impact would probably come from the automotive, construction, and packaging industries as the cost of steel, cement, and aluminum will rise significantly. The steel industry is expected to be the one impacted the most as they currently produced up to 200 million metric tons of CO2 annually, roughly costing them up to USD 12.5 billion by 2030.

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Currently, there is no news or plans regarding how the EU would further allocate these immense revenues from the carbon tax. Some non-governmental organizations have been calling out the EU to allow this money to be used for climate protection actions and sustainability developments, not only within the EU but especially for the poorer, lower-income countries in the southern region as they are expected to be the ones who would be impacted the most.

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