French President
Nicolas Sarkozy upped the Green supply chain ante this week, as he not only called for France to begin use of carbon taxes internally, but also called for the European Union to adopt a series of co-called "carbon tariffs" to protect EU industries from imports coming from countries with lower costs from CO2 emissions. Sarkozy first announced that France will next year become the largest economy to levy a carbon tax, following the lead of smaller countries and economies such as Finland, Sweden and Denmark. While most European countries have high taxes on energy generally, the French tax would be specifcally tied to the specific CO2 footprint of different types of energy, and be in addition to the modest "cap and trade" system already in place in the EU.
The plan, however, is to introduce the carbon tax at a low rate to try to pre-empt a backlash from an already heavily taxed French public.
The plan is to begin the tax at
a starting rate of €14 per metric ton of emissions, which equates to about $20.00 US. That should roughly lead to an additional price at the pump of 3 cents per litre, or the equivalent of about 11.5 cents per gallon using US measures. (For a more detailed explanation of cap-and-trade programs versus carbon taxes, download TheGreenSupplyChain.com report: Preparing Supply Chains for the Green Future: Understanding Cap-and-Trade Versus Carbon Taxes.)
Sarkozy has promised that the carbon tax - named the "climate-energy contribution" - will be revenue neutral, meaning proceeds would be distributed back to taxpayers in some way, though how this would happen is not yet clear.
Carbon Tariffs Coming?
A major concern to many companies and policy makers in developed countries is that as cap-and-trade or carbon taxes increase production and operating costs for firms domestically, it will give an unfair and perhaps sizable advantage to companies in developing economies where such programs are not implemented.
Alternatively, Western companies may simply choose to get rid of their own carbon headaches and costs by moving even more production offshore.
Indeed, both China and India have recently said that CO2 emissions were not high on their economic strategies right now. (See China, India Just Say No to G8 on Green SCM.)
The answer for many is a "carbon tariff," in which there is some duty assigned to imported goods, based on their emissions profile and the equivalent cost in the importing country, and perhaps the logistics to get the product there. How such a program would work in practice is very unclear - would the tariff be at a country level, or look at the specific factories and supply chains of the producing company.
In a speech over the weekend to a Euro audience, Sarkozy said "I'm in favour of environmental protection but I want to keep our industry."
He further vowed to "lead the battle" against cap-and-trade or carbon tax systems in which European countries impose constraints on their industries for climate protection, while allowing imports to continue from countries that do not respect the same rules.
Getting such rules adopted, especially across the 27-member EU countries, each with their own interests, may not be easy. In fact, likely hard choices will have to be made with regard to developing additional CO2 goals and standards, such as planned for this December's meeting in Copenhagen to iron out a "global climate treaty," and first developing a tariff mechanism to protect companies in the countries agreeing to such a treaty.
Sarkozy claims his call is not about protectionism, but fair competition. He said he was encouraged by the US, where the House of Representatives included a provision for a border carbon tariff in its draft climate bill.
What do you think of the idea of carbon tariffs? Can you see how they could be designed in a way that would actually work? Let us know your thoughts at the Feedback button below.
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