At the end of marathon negotiations between the European Parliament and the member states of the Union, a first-of-its-kind mechanism was agreed this week to impose a “carbon tax” at the European level on energy-intensive products and goods that will be imported into the economic bloc from now on. Countries and producers outside of Europe have already accused the bloc of customs and tariff policies that go against the rules of the free market, but the leaders of the union announced that the reform is necessary in order to reduce greenhouse gas emissions globally, and to meet the bloc’s own ambitious goals in the field.

The new law, called CBAM (Carbon Border Adjustment Mechanism), is intended to “level the global playing field” on which producers of carbon-intensive goods and products such as aluminum, cement, steel, iron, fertilizers, hydrogen and more operate. Today, within the borders of the European Union, some of the producers of these products are supposed to pay a “carbon tax” for each ton of carbon dioxide emissions. This is a negative incentive designed to drastically reduce emissions in the bloc. Now, according to the new law, in the coming years a new tariff will be added to the price of identical goods coming from outside the EU, from countries that have not adopted the obligations of the European Union.

“The European mechanism will affect Israeli companies already in about a year, when a reporting obligation will come into effect – actually presenting an accounting chart of the intensity of greenhouse gas emissions for every Israeli company that exports to Europe products included in the established categories,” attorney Dr. Ruth Dagan, head of the department, tells Globes Environmental Quality and Climate at the Herzog Ministry, and a consultant to the United Nations on the international carbon trade mechanism.

According to her, in about two years, if no major changes are made in the reform as a result of global opposition, Israeli companies will already be required to “pay what the Europeans pay for greenhouse gas emissions”.

All this, according to her, because Israel currently does not have any mechanism for pricing carbon dioxide emissions that would require a local payment on the part of the companies, and could “win” them from paying the carbon tax to the European Union. “In the current situation, when a product included in the mechanism reaches the customs authorities in Europe, the company will report ‘I paid zero for greenhouse gas emissions’. This means it will have to pay a tax, and the implications of this are very heavy for the State of Israel. All these revenues will actually go to Europe.” The sectors included in the European reform (see news on the page), she says, are very relevant to Israeli industry, and include fertilizers, chemicals and metals.

The solution: forming a mechanism similar to that of the Union

The solution to this problem, according to her, is that “Israel should actually adopt a mechanism similar to the one formulated in Brussels, which will collect a carbon tax and return the money for the decarbonization of the industry, as is done in most OECD countries.” Such a mechanism will also apply to goods and products from abroad, and will also be fair for the producers in Israel who face international competition.

“The immediate consequences of the reform are mainly for companies in the petrochemical sector, but also for manufacturers of steel and aluminum products,” adds attorney Galit Ofer, partner at the Shibulat law firm, head of the environment and sustainability department. “In the most basic sense, for the companies The relevant Israelis to start measuring their carbon footprint (Carbon Footprint) in order to report on it.”

Also according to her, “As far as the relevant companies in Israel are concerned, the most correct step would now be to contact the government and demand the establishment of a parallel carbon tax collection mechanism. In fact, following the European legislation, we could soon find ourselves in a situation where the manufacturers’ association will work to promote a local carbon tax.” Local taxation, she says, is expected to be more “convenient” for companies than a union charge. Adv. Ofer adds that the intention in Europe is to expand in the future the sectors that will be included in the new carbon tariff that will be established.

Assaf Oni, Berlin

To a large extent, this is an attempt to use the economic power of the European Union – the third largest bloc in the world in terms of GDP – to begin and introduce considerations of reducing carbon dioxide into global production. The European Union hopes that through the legislation, manufacturers exporting to its territory will act to reduce emissions during the production.

At the same time, the Union is trying to prevent a phenomenon that has already occurred in recent decades of “carbon leakage” – the migration of the production and use of polluting energy from it to unregulated countries, which does not reduce emissions globally, but only changes their geographic location.

The law is still awaiting final approval by the European Parliament and the heads of the Union and will enter into force gradually. Also, the price of the tariffs will be low at the beginning, until it gradually equals the price per ton of carbon dioxide emissions paid by the European companies. The Union has also pledged to gradually stop the existing subsidies for certain sectors (waiver of the carbon tax), which aim to prevent the bankruptcy of significant areas of production in its territory due to a loss of competitive advantage.

The new law is part of the “Green New Deal” announced by the European Union in 2019. The commitment includes a 55% reduction in carbon emissions by 2030, and zero emissions by 2050. Next year, a three-year transition period will begin, during which manufacturers exporting to EU countries will probably only have to provide a report on carbon dioxide emissions during production. The actual taxation is expected to start only in 2026.

The first countries to be affected: USA and India

The impact of the law on production and energy issues is expected to be significant, so it is already causing controversy. Peter Lisa, one of the members of the European Parliament who participated in the negotiations, told Reuters that this is “the most significant climate law that has ever been enacted in Europe, and some would say in the entire world.” Its critics, mainly from countries such as the US, India and other producers, say that it constitutes A protectionist “imposition of tariffs” designed to protect European domestic industry and harm competition by setting unrealistic standards.

For comparison, when US President Donald Trump imposed “ad hoc” tariffs on steel and aluminum from the European Union, Brussels turned to the World Trade Organization (WTO). One of the main differences between the measures is that Trump justified the move in the name of “national security”, while The EU is now doing this in the name of the environment.

Will the US follow Europe?

In the US, the current Biden administration has also announced that it is considering adopting similar legislation, which would impose tariffs and tariffs on metals imported into the country. It is possible that the legislative initiative will gain renewed momentum, now that the European agreement has been reached. Within the European Union, the Union of Metal Producers said that the institutions must find a way to continue the subsidies for manufacturers, “because we have to continue to be competitive. Our sector cannot afford another loss of revenue, in addition to the current energy crisis.”

A large part of the negotiations revolved around the subsidies currently given to European industry, and what their future would be after the implementation of the mechanism. The European carbon market – the need to pay for polluting emissions – is conducted mainly within the framework of the carbon emissions trading program. The Union has committed within the framework of the new law to a more ambitious goal of reducing 62% of greenhouse gas emissions in the sectors included in it by 2030 (compared to 42% so far), as well as extending it to the field of aviation and maritime transport. At the same time, he committed to reducing the exclusions given to certain areas (buying emission rights at no cost in certain industries). The Union will also establish a “compensation fund” worth 65 billion euros for those who will be affected by the move.

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