The environment: Why the EU needs a border tax on carbon emissions.

The practical policy implications of this analysis are clear; the world would benefit from the imposition of a (small) carbon import tariff by the EU (the only significant country with a cap-and-trade system in operation). The justification for the tariff would, however, be completely different from the one usually advanced by politicians (and industry). It would not be to “level the playing field” for EU industry but to protect the global environment. This is a crucial difference since this implies that the tariff would be compatible with WTO rules, whose Article XX allows for exemptions if the aim is to protect a global natural resource.

The Commission has estimated that a carbon price of around the €40-50 per tonne would be required to reach the EU’s 2020 commitments. This would imply, at current exchange rates, about $50-70 per tonne. This might be too high for the US, where $30-$40 per tonne has been estimated to be the politically feasible limit. At $40 (€30) per tonne, a border carbon tax on Chinese exports (to the EU) would be a bit more than two times $40 per $1,000 of exports, or approximately 9% on average. Rates would be much higher for energy-intensive products and lower for most others.

As China upgrades the sophistication of its exports, the average rate might come down, but under current conditions the average carbon tax could thus be very significant, much higher than the most-favoured-nation tariffs currently applied by the EU, and certainly an order of magnitude larger than the modest tariff reductions that were contemplated under the Doha round.

Note EU-Digest: French President Nicolas Sarkozy said on Wednesday, in Cholet, Western France that a carbon tariff on European Union borders was necessary to balance international trade for French and EU enterprises. We completely concur, "Vous avez tout afait raison monsieur le Président".

It is unfair to impose carbon tax on EU enterprises, while letting other countries like China neglect their environmental responsibilities and get a competitive advantage.

For the complete report click on the link : Why the EU needs a border tax on carbon | vox - Research-based policy analysis and commentary from leading economists