The European Union is set to introduce a carbon emission tax at its borders. Switzerland, a leader in this domain, already boasts one of the world's highest carbon dioxide taxes. Swissinfo provides an overview of the origins and implications of this policy.
The carbon border tax, officially announced by the European Commission on July 14, aims to protect European companies from unfair competition by imposing tariffs on imported products from countries with lower climate and environmental standards. This measure is a key component of the "European Green Deal" and will initially target high-emission industries such as electricity, cement, and steel. The goal, as explained by Pascal Lamy, a proponent of the EU carbon border tax and former Director-General of the World Trade Organization, is to equalize carbon pricing domestically and on imports to prevent companies from relocating to countries with lower carbon costs.
Philippe Thalmann, a professor of environmental economics at the Federal Institute of Technology in Lausanne, supports the move, describing it as both wise and necessary. He explains that within the EU, companies must pay for carbon dioxide emissions, and border taxes will prevent these companies from evading the system. Established in 2005, the EU's Greenhouse Gas Emissions Trading System (ETS) operates on the "polluter pays" principle, involving over 10,000 companies across the power, manufacturing, and civil aviation sectors. The current emission allowance is approximately $50.
However, the EU carbon tariff has not been universally accepted. In April, during a video conference with Emmanuel Macron and Angela Merkel, Chinese President Xi Jinping opposed the measure, criticizing it as a "trade barrier" under the guise of climate change.
Switzerland's Carbon Dioxide Tax
Since 2008, Switzerland has imposed a carbon dioxide emission tax on fossil fuels such as heating oil and natural gas. This measure was adopted after Switzerland failed to meet its previous climate targets, aiming to encourage a reduction in fossil energy consumption for heating. For instance, it promotes replacing oil-fired boilers with heat pumps to lower carbon dioxide emissions.
The current tax rate is 96 Swiss francs per ton of carbon dioxide, equivalent to 0.25 Swiss francs per liter of diesel. Due to insufficient reductions in greenhouse gas emissions, the tax rate is set to increase to the legislative maximum of 120 Swiss francs by 2022. Approximately two-thirds of the tax revenue is returned to citizens and the economy, with heavy fossil fuel consumers eligible for tax exemptions if they commit to reducing emissions. Swiss Environment Minister Simonetta Sommaruga has noted that the carbon dioxide tax, which incentivizes emission reductions, is "widely accepted."
Effectiveness of the Carbon Tax
Philippe Thalmann highlights the effectiveness of the tax in sectors using fossil fuels for heating, particularly the construction industry, which has seen the largest emission reductions. The tax is also effective in industry, as companies seeking tax exemptions must reduce their emissions.
Global Carbon Pricing
"There are two ways to price carbon: an emissions trading system and a carbon dioxide tax," explains Thalmann. The choice between these models depends on the country or industry in question.
According to World Bank data, in addition to EU countries and Switzerland, more than a dozen countries have adopted one or both of these models. These countries include Canada, Mexico, China, and South Africa. Finland was the first country to introduce a carbon dioxide tax in 1990. Currently, Sweden has the highest tax rate at $137 per ton, followed by Switzerland at $101 per ton.
As the EU moves forward with its carbon border tax, Switzerland's experience with carbon taxation offers valuable insights into the potential challenges and benefits of such measures. The global trend towards carbon pricing reflects a growing recognition of the need to address climate change through economic incentives.