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How an EU Carbon Border Tax Could Jolt World Trade

Articles
9 October 2020

The Boston Consulting Group has prepared a report on the impact on global trade of initiatives to fight climate change and protect the environment, in particular, the EU Carbon Border Tax.

Although the policy has important proponents in Europe, it would create serious near-term challenges for companies with a large greenhouse gas footprint—and a new source of disruption to a global trading system. A European carbon border tax would impact, either directly or indirectly, all industrial sectors that rely on imports into the EU and would influence sourcing decisions throughout entire value chains.

To assess the potential impact of the carbon border tax, authors analyzed a selection of carbon-intensive industrial sectors—semimanufactured gold, bituminous coal, mechanical and chemical wood pulp, crude oil, and flat-rolled steel products. In each examined sector the tax’s impact would be significant.

The authors note that, the EU carbon border tax would also transform the competitive landscape of several industries by putting producers with highly carbonintensive processes at a strong disadvantage, compared with EU companies or foreign competitors that have a smaller carbon footprint.

The paper also provides tips for CEOs: although the exact mechanics and timing of a carbon border tax must still be determined and approved by legislators, CEOs should begin preparing now.

For more information about measures to combat climate change and protect the environment, please see the Trade policy, Globalization/regionalization, Environment and Climate Change.

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