Europe needs a carbon tax. But not the only one he decided…

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Atlantico: The European Union agreed on Tuesday to the broad outline of its carbon cap adjustment mechanism (MACF), a system unique in the world. This will make it possible to tax, in the most polluting sectors (steel, cement, fertilizers, etc.), imports of goods from third countries with less strict standards for combating greenhouse gas emissions. Why is this proposed carbon tax risk creating difficulties for industry and businesses?

Denis Payre: This is a big issue. These imbalances explain the rise of populism. It was studied by an MIT economist, David Autor, who showed direct correlations between the development of trade in China and the Trump vote. We can consider that Brexit is also linked to this.

The carbon tax at the borders came from a revolt of the steel industry that raised the awareness of the European Commission to say “we can no longer continue with such unfair competition vis-à-vis countries like Turkey or China without these taxes. .

Basically there is a real problem of unfair competition where the given solution is the carbon tax, but the problem is that we realize that we need to include reflection in the whole value chain. If you try to impose border correction systems on steel production but not on the resulting products, you will penalize European steel users who will change it. This is a more complex problem than the one tackled by the European Commission.

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And then we have to think about audit mechanisms to make sure that if a country like China claims that its steel is produced by photovoltaic energy, we should quickly find out if it is true. China dominates all energy transfer industries and controls wind turbine manufacturing. This is due to differences in social and environmental standards.

We are witnessing the return of the pendulum. We had a completely unrestrained globalization without any restrictions and that’s when we realized that it wasn’t working for various reasons so we were heading in a different direction in a drastic way. The United States will limit state aid for energy production products to products that strictly come from NAFTA. This is a problem because there won’t be enough competition. We are throwing out 50 years of free trade economic theories that are not wrong. Free trade is good when done between like countries. However, when it is opened to countries that do not play by the same rules of the game, there is a distortion of competition.

The sad thing is that there is relatively little intellectual/academic reflection on these issues because economists are blinded by the idea of ​​unbalanced and unethical free trade. Politicians are left to their own devices on these topics today without any economic considerations behind them.

We do not consider all the downstream sectors. For example, a knife manufacturer can only buy “clean” steel (subject to carbon taxes) and finds himself in competition with manufacturers who buy carbon steel at a lower price.

A relatively immediate solution (but does not solve the whole problem) is to talk about products and the amount of carbon tax they contain. This allows us to say that the European manufacturer has its own products. But this is not a miracle solution, the day when the price difference matters, consumers will move towards the cheapest products, even if they are more carbon-intensive. This is not enough and we must continue and the entire downstream sector is subject to carbon adjustments up to a certain point. This is a complicated topic, but since it is an important question, we need to look at it.

We certainly have to deal with countries that don’t have these carbon rules. A country like China is deploying – in addition to what they already have – more than 200 GW of coal-fired power plants, the equivalent of what the United States has maintained.