The EU’s Carbon Tax is Protectionism We Don’t Need
The new president of the European Commission, Ursula von der Leyen, is assembling her cabinet, which will be presented and subjected to hearings by the European Parliament in autumn. Yet when it comes to the priorities of her Commission, she has already laid out several far-reaching proposals, particularly on the environment. Von der Leyen has made it known that she wants to fight climate change through increased taxes, most notably carbon taxes.
Those carbon taxes would be in addition to the EU Emissions Trading Scheme (EU ETS), which puts a variable price on a ton of CO2. At the moment, that price is €26 ($29)—and according to climate activists in Germany, it should be €180 ($200).
On top of that, now, we have the “carbon border tax.”
The main objective of this border adjustment is to prevent the relocation of carbon-intensive production to non-EU countries, a problem known as “carbon leakage.” When companies outsource production to avoid carbon costs, they shift their emissions abroad. That reduces the effectiveness of EU climate policy objectives. This is of exceptional concern to Brussels, as non-EU countries, such as those in the Balkans, as well as Moldova, Belarus, and Ukraine, could come to rival EU producers as a result. The logic is very European: first we curb our own business efficiency through regulation, then we call other countries unfair competitors. This will affect the United States as well.
This is hardly the first time that European leaders have restricted trade due to environmental concerns. It was the most notable reason why the Obama-era free trade agreement, the Transatlantic Trade and Investment Partnership (TTIP), was laid on ice, or why the bloc still does not have a free trade relationship with China. French President Emmanuel Macron is even threatening to block a trade arrangement with South American countries (called Mercosur) in case Brazil leaves the 2015 Paris Climate Accord.
In reality, none of these reasons are or were genuine. Trade with China and South America—and the United States for that matter—would reveal an inconvenient truth about the European Union, namely that it is overburdened by its own governments. Why else would Emmanuel Macron show thorough opposition to a new trade deal with the U.S. containing agricultural products? Under that agreement, French farmers would be rivaled by American food, which would easily come at a lower cost. Europe has consistently restricted scientific innovation in agro-tech by not allowing advancements in genetic modification or gene-editing—and then acts surprised when other countries happen to be more efficient. France, in fact, has so over-regulated its own industry that it’s become a net importer of food, despite the EU’s generous farming subsidies.
Don’t misunderstand: the trade policy of Donald Trump isn’t much different. Threatened by the motor industry in Japan and Europe, which rivals American manufacturers, Trump constantly threatens tariffs. The difference between Trump and the European Union is the pretense in Brussels that this is not protectionism but rather something much more virtuous: environmentalism done in the name of fairness.
Take the most recent spat between Trump and France. France has been pushing the European Union since 2017 to introduce a so-called “digital tax,” which would target giant tech companies operating in Europe. The goal was to get those companies out of more favorable corporate tax locations such as Ireland and Luxembourg. The legislation was tailored towards American corporations (rather than European ones), so much so that it was actually coined the “GAFA tax” (Google, Amazon, Facebook, Apple). The official reasoning was that big companies need to pay their fair share. The fact that all of them happen to be American is just a coincidence, or so they want us to believe.
The attempt to introduce the tax on an EU level has thus far failed, as Germany believes that the United States would retaliate with tariffs on cars. Paris went ahead and introduced the tax nationally this year, to which Trump wants to respond with tariffs on French wine. Cue the outrage. French agriculture minister Didier Guillaume called Trump’s response “moronic” and finance minister Bruno Le Maire said that the two topics shouldn’t be conflated. Why not though?
The United States is France’s second export destination for all spirits, while the tech companies’ services aren’t an export from a transportation perspective. Google, Facebook, and Apple are registered in Ireland, while Amazon is headquartered in Luxembourg. The reasons France isn’t chosen as a destination are the excruciating levels of tax and overburdening labor regulations, along with constant anti-government protests, recurring strikes everywhere from airports to metro lines, and repeated increases in carbon taxes. The fact that France is sinking into the ground commercially is its own fault, not that of the U.S.
None of this is productive. It is consumers and local businesses that pay the price for these tariffs, which constitute a circle of political overreaction that results in economic decline. Europe will continue to mask its protectionism in carbon taxes and digital fairness. The truth is that it needs to grasp the reality and grow up.
Bill Wirtz comments on European politics and policy in English, French, and German. His work has appeared in Newsweek, the Washington Examiner, CityAM, Le Monde, Le Figaro, and Die Welt.