Letter: Expanded EU carbon border tax is not a reaction to US tariffs

In his op-ed (August 12) Andrew Puzder, the US ambassador to the EU, accused the EU of double standards. He argued that criticising US tariffs on steel and aluminium derivatives while simultaneously imposing Carbon Border Adjustment Mechanism charges on the same products, is hypocritical.

To him, CBAM is simply “a tariff by another name”. 

On a superficial level, CBAM does raise the cost of imports, and can therefore act as a market barrier. The EU, however, considers CBAM to be in compliance with World Trade Organization rules, and any dispute over its compatibility would ultimately be a matter for the WTO to assess. The EU could thus face countermeasures and might then consider adjusting CBAM accordingly. None of this, however, would undermine the EU’s right to pursue climate legislation. Simply equating it with a tariff overlooks three important distinctions.

First, import tariffs are typically designed to protect domestic producers or to raise revenue — both objectives the US administration has invoked to justify its tariffs. CBAM serves a different purpose: it is designed to prevent carbon leakage by ensuring that imports face a carbon cost comparable to that borne by EU producers under the EU Emissions Trading System. In this sense, CBAM is an extension of an internal climate policy, not a trade instrument in disguise.

Second, if a carbon price has already been paid in the country of origin, this can in principle be taken into account, and no additional carbon border charge would apply.

That is not how tariffs typically work. While Puzder states that the US has no carbon price, this is only true at the federal level. California and Washington State already operate multisectoral carbon-pricing systems based on cap-and-trade or cap-and-invest mechanisms. Other states have introduced or are considering more limited mechanisms, which could in principle be taken into account under the EU CBAM.

Third, CBAM was always intended to cover a wider range of products than those included at its launch. Any gradual expansion of CBAM’s product coverage therefore reflects the original design of the mechanism, not a reaction to US tariffs. 

Finally, dismissing efforts to tackle climate change is shortsighted — particularly when Europe suffers from scorching heat and droughts, China and the US record historic temperatures, and other countries like Mozambique and New Zealand face devastating floods.

These events make clear that climate change is affecting humankind globally. To avert its increasingly severe consequences, industrialised countries in particular have a duty to act and transform their economies.

The EU has taken a step in this direction by implementing emissions trading and carbon pricing across parts of its industry and energy sector. Next up are its building and transport sectors.

CBAM can build on this: ideally, it creates incentives for cleaner production and lower emissions abroad and encourages the spread of carbon pricing beyond EU borders. This is not protectionism; it is applying economic rationale in pursuit of a common good.