The onset of the Border Tax takes Europe’s carbon battle global

The European Union is escalating its endeavours to become the world’s inaugural climate-neutral continent. The recent implementation of the policy signifies the first step in motivating other regions to embark on comparable initiatives.

Image Credit: Shutterstock

The European Union is intensifying its efforts to lead as the world’s first climate-neutral continent. A newly implemented policy, marks the initial stride towards encouraging other regions to take similar actions.

Over time, this measure will impose a tariff on imports with high carbon footprints. This move aims to ensure that European businesses, which are obligated to adhere to the continent’s stringent climate regulations, do not encounter unjust competition from manufacturers located beyond the European Union. On 8^th October, the initial phase of the Carbon Border Adjustment Mechanism will come into effect, obliging importers from six carbon-intensive sectors to commence emissions reporting.

Tim Figures, a senior expert at Boston Consulting Group, remarked, “This will carry strategic and financial consequences for global businesses. It marks the commencement of an extended journey, and even if certain companies remain unaffected initially, they could potentially be impacted at a later juncture, considering the EU’s ability to expand its scope to include additional industries.”

The mechanism has encountered resistance from major trading partners of the EU, including Russia and China, who argue that it undermines the principles of free trade. It has also contributed to trade tensions between the EU and the US, as earlier this year, the Biden administration requested exemptions for its steel and aluminium exports.

However, as it progresses, this mechanism will serve as a significant test of whether global carbon pricing can be established to combat global warming. In the second phase, starting from January 2026, companies will be obligated to gradually pay a levy in accordance with the prices in the EU’s carbon market. As of Friday, the benchmark EU emissions contract was valued at approximately 82 euros per metric ton of carbon.