Carbon tax, the G20 agreed for the first time
Environment — di Andrea Barolini
For the first time, a G20 ended with a consensus around the idea of introducing a carbon tax, a levy on CO2 emissions.
Carbon tax, the G20 agreed for the first time
For the first time, a G20 ended with a consensus around the idea of introducing a carbon tax, a levy on CO2 emissions.
The G20 held from 7 to 11 July in Venice brought with it confirmation, from the governments of the world's most important economic powers, of the intention to impose a minimum tax on multinational corporations' profits. This was aimed at combating tax evasion and avoidance. A paradigm shift compared to previous decades — cautious and imperfect, though it may be — which made front pages around the world. It is partly for this reason that another particularly important decision passed more quietly: for the first time, the Finance ministers approved the principle of taxing CO2 emissions.
The United States, long opposed, backs the carbon tax
The so-called carbon tax, conceived with the aim of acting as a deterrent and persuading businesses not to pollute, had always divided G20 member countries. The United States, in particular, had long been opposed. This time, however, the ministers declared that "the fight against climate change and biodiversity loss, as well as the promotion of environmental protection" represent "urgent priorities".
Hence the decision to support the carbon tax. The president of the European Central Bank herself, Christine Lagarde, underlined the need for such a levy — as well as the need to set a value that reflects the true cost of CO2 emissions.
The prospect of a carbon border adjustment mechanism
The choice of a "common rate" also underpins the possible introduction of a carbon border adjustment mechanism. The European Union has been studying it for some time now: the Carbon border adjustment mechanism is intended to affect the prices of imported goods, ensuring that they "incorporate" the cost of greenhouse gas emissions linked to their manufacture.
In this way, on the one hand it would be possible to avoid unfair competition from countries that are not doing enough on climate. On the other, it would prevent certain European companies from relocating their production, exploiting the more permissive rules adopted outside the EU's borders.
The International Monetary Fund pushes to avoid the costs of inaction
According to the Financial Times, American Nobel Prize-winning economist William Nordhaus, in a speech delivered at the G20, explained that a high price on CO2 emissions is crucial in the fight against climate change. To those who still object that it risks being too burdensome for businesses, the managing director of the International Monetary Fund, Kristalina Georgieva, replied that this cost "is negligible" compared to what would have to be paid, in the long term, without timely action on the climate crisis.
The carbon tax is set to generate a lot of controversy in the coming months. More on this and more in our G20 takeaways in today's @ftmoralmoney newsletter
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The European proposal, however, currently covers only five sectors: steel, cement, fertilisers, aluminium and electricity generation. A review of the mechanism is planned from 2026, to assess whether or not to include other sectors.