Will Carbon Border Tax Adjustments Represent a New Frontier in Trade Policy

The EU ETS scheme is fundamentally altering the economics of metals and fertilizer production in Europe. The current pathway is unsustainable, amid high costs, weak market conditions, and intensifying international competition.

In this context, the EU Commission is planning to impose carbon border tax adjustment (CBTA) – a tariff levied on carbon emissions embodied in imported goods into the EU – to "level the playing field". Such measures have significant potential to redraw the competitive landscape for these strategically critical industries. But their ultimate impacts are highly uncertain and substantively dependent on policy and market specificities. What does it mean for your business?

European metals markets under pressure with a fundamental policy shift seeming likely

The EU ETS scheme is fundamentally altering the economics of metals and fertilizer production in Europe. The European carbon price has rallied to over €25 a tonne of carbon dioxide (CO2), and is set to rise higher in the longer term, fundamentally altering the economics of metals and fertilizer production in Europe.

With metal production costs in Europe – already high by international standards in many cases – rising faster than among producers in competing jurisdictions, the future of much of the European metals industries looks uncertain. It is likely that further policy reforms will be required to ensure sustained industrial activity in a higher carbon price world.

The EU Commission is planning to impose CBTA to "level the playing field". The new president of the EU Commission, Ursula Von der Leyen, has made no secret of her plan to introduce a CBTA (a proposal that has long had the support of powerful European stakeholders, including the French authorities). Officials are now understood to be drafting guidelines for potential carbon tariffs on steel, cement and power industries. Aluminum, copper and other base metals are also likely to fall under the eye of the policymakers.