The European Union is implementing new taxes for domestic companies and foreign trade partners to decrease pollution across the board.
New Era, New Rules
As the world continues to transition towards clean energy and green measures to address climate change, one of the major obstacles standing in the way of the task is the financial gains that are correlated with the destruction of the environment.
Taxes are a great way to ensure that there are significant repercussions for the careless extraction of natural resources while directing that profit from the companies toward the public good. In Europe, this is top of mind as the EU wants to set itself up as an example of what benefits green technology can provide for the nations in the bloc.
This is why a new program to tax foreign companies importing goods created by climate pollution is being pushed forward and implemented.
What Does the Policy Entail?
As of writing, the first measure that the bloc has taken is implementing its cap-and-trade system, in which polluting companies are required to purchase a pollution “allowance,” permitting them to operate at a cost. The EU has been giving out these allowances for free to prevent European companies from moving their operations abroad.
However, that is ending in tandem with the implementation of their border tax, in which foreign companies will be taxed in accordance with the respective companies that are being taxed under the pollution allowance system.
This addresses two problems the EU has been experiencing recently, the first being moving domestic industries abroad. The second is the actual application of comprehensive environmental policy.
This policy could be widely influential as the taxing of goods according to how much the companies pollute actually implements financial consequences for polluting companies and rewards companies for having environmentally sensitive operations.
This policy is still in the early stages, though, as the goods that are currently under the policy’s breadth are only iron, steel, cement, aluminum, fertilizers, electricity, and hydrogen. This tax will also be phased in slowly over the course of nine years beginning in 2026.
The Example for Others
This policy could have reverberating effects throughout the world, as the EU is not an inconsequential economy, and countries and companies looking to trade with them might be spurred on to adopt their own climate-related taxes.
However, despite the benefits and potential downstream effects, international trade doesn’t make up as much of the worldwide pollution as policymakers and economists suggest. A lot of the pollution in the world is made up of domestic industries manufacturing and producing goods used within the country. Hence, domestic taxes on pollution are necessary, along with international trade taxes.
However, the benefits are certainly there and could potentially usher in a new era for international trade.
