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Europe threatens U.S. with carbon tariffs to combat climate change

“It’s not whether it’s going to happen — it’s going to happen,” former Secretary of State John Kerry, who helped negotiate the Paris accord during the Obama administration, said in an interview with POLITICO.

The European Union charges a fee of 25 euros — nearly $28 — per metric ton of carbon dioxide emitted by EU companies such as oil refineries, steelmakers and paper producers. Because other major economies such as the U.S. refuse to set a carbon price for their own industries, the EU’s approach risks making many European companies uncompetitive, and it has prompted calls for a “border adjustment” tariff based on imports’ climate impact in their home countries.

Spanish Economics Minister Nadia Calviño Santamaría told reporters at the U.N. conference that she wants a carbon tariff “as soon as possible” that would target any country that doesn’t abide by its commitments under the 2015 Paris climate agreement. Trump has said he intends to pull the U.S. out of the pact next year.

“We need to ensure that climate policy does not create an unlevel playing field between those players which operate in jurisdictions which have higher standards and those that maybe do not,” Calviño said.

Neither the White House nor the U.S. trade representative’s office replied to a request for comment, though a senior U.S. official at the U.N. talks said tax issues “are of great concern to us.”

Senate Energy Chairwoman Lisa Murkowski (R-Alaska) said she hoped the EU would step back from efforts to raise tariffs. “One would have thought we were all done with the escalation,” said Murkowski, who led the effort that lifted a ban on U.S. crude oil exports in 2015.

Some European leaders have expressed concern about the idea, including German Chancellor Angela Merkel, who on Friday stressed the need for the EU to proceed cautiously or risk escalating trade tensions.

“Countries that have not expressed a similar commitment to climate protection as we have could consider this as a kind of protectionist measure,” she told reporters in Brussels.

EU leaders similarly did not back a proposal to begin setting up a tariff that was included under the European Commission’s Green Deal plan at their gathering on Friday in Brussels. But the effort appeared to be gaining momentum.

Nations that want to avoid carbon tariffs can simply enact their own tough climate policies, some European leaders say.

“If you take the same, or comparable, measures there will be no need to correct anything at the border,” said European Commission Executive Vice President Frans Timmermans. “If you don’t, then of course, at some point we will have to protect our industries.”

The potential rift comes as the World Trade Organization has been set adrift this week when the terms of two judges on its appellate panel expired. The United States has blocked the appointment of new judges, a move that effectively gutted the power of the global trade referee to rule on disputes between countries.

Merkel’s caution is in line with the calls from European Commission President Ursula von der Leyen for a carbon border tax that fully complies with global trade rules, as she laid out in a set of political priorities issued before she took up her post this month.

France, the most vocal carbon tariff supporter, has drawn backing from countries such as Spain. They have persuaded Germany to reconsider the idea after years of resistance, though many in the German business community remain opposed.

“I see explicitly the danger of talking about a carbon border tax. I don’t think that’s a good idea,” said Holger Lösch, deputy director general of the Federation of German Industries.

International energy-intensive industries such as aluminum, steel and chemicals are driving much of the discussion, said Dirk Forrister, executive director of the International Emissions Trading Association. Luxembourg-based ArcelorMittal, the world’s largest steelmaker, has for years called for a carbon levy, arguing that the EU’s emissions trading system puts homegrown businesses at a disadvantage against international rivals that don’t pay carbon fees.

Forrister said the European Commission has had to consider protective measures for those sectors as it attempts to push through a target to achieve economy-wide net-zero carbon emissions by 2050 while major competitors in China and the U.S., the world’s top two emitters, have yet to implement such regimes.

“The trade dimensions are getting more serious and this is a logical equal and opposite reaction to those concerns,” Forrister said. “As time moves on, if you aren’t getting that result [through the Paris agreement] then you would expect these tariff questions to come up more and more.”

Kalina Oroschakoff, Eric Wolff and Anthony Adragna contributed to this report.

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