Commission wants import tax to offset Kyoto costs

A paper drafted in the European Commission recommends taxing goods imported into the EU from countries which do not have compulsory emissions trading schemes.

The report was drawn up for a group of senior politicians and industrialists discussing energy and environmental problems, the high-level group on competitiveness, energy and the environment.

The paper says that "goods ­entering the EU market" would be "subject to a border tax" if they had not been produced within the EU under the emissions trading scheme (ETS). This would include the US and parts of the developing world like China and India.

The paper suggests that cement production could be a "good product to trial this approach".

The proposal forms part of a set of recommendations on how to improve energy efficiency through the taxation system while not harming the competitiveness of the EU’s energy-intensive industries which are facing higher costs because of the ETS.

The high-level group, which is made up of commissioners, EU industry ministers, representatives of energy-generating and distributing companies and energy-intensive industries, is meant to produce recommendations next year on how to deal with rising energy demand and prices, and how to tackle climate change while maintaining the competitiveness of EU industries.

But the border tax proposal has already run into opposition, with group members’ delegates, or sherpas, expressing fears about a backlash from trading partners like the US. At a meeting of the high-level group’s representatives last week (26 September), the German minister’s sherpa called for the suggestion to be deleted, citing concerns that the move would break international trade rules. World Trade Organization (WTO) rules forbid member countries from imposing additional taxes on products simply because they are manufactured outside that country.

But a number of people present at the meeting argued for retaining the proposal. John Hontelez, from the European Environment Bureau, an umbrella group of 140 conservation organisations, said: "Several industry people and government representatives said [during the meeting] this will create huge problems in the WTO and will provoke retaliation from the US." He added: "We think we should keep this on the table because we can’t be taken hostage by countries which don’t have the same environmental standards."

The paper will be discussed again by the sherpas on 10 and 20 October before being sent to the high-level group members themselves for endorsement on 30 October.

A senior Commission source stressed that the document presented to the sherpas’ meeting last week was "just an input paper" to "test out members of the group". "It’s very preliminary," he said, pointing out that the concept of a "border tax adjustment", as the idea was known in academic discussions, was not new. "It’s perfectly legitimate to analyse the issue ahead of the interesting discussion we are going to have next year," he said, referring to the negotiations over the successor to the Kyoto Protocol. This would include how to address the problem of delocalisation, which saw companies switching production to regions where they did not have to bear the costs of emissions trading schemes.

One sherpa admitted that the proposal was unlikely to survive in its current form, saying that "tax" was the wrong word and should be replaced by a description likely to be more acceptable to the WTO such as a "levy".

A paper drafted in the European Commission recommends taxing goods imported into the EU from countries which do not have compulsory emissions trading schemes.