Carbon tariffs on imports risk trade war : EU study

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The European Union (EU) is considering border tariffs on imports from more polluting countries, but an initial assessment shows such levies could spark trade wars, draft reports show.

Two European Commission reports do not explicitly reject a push for border tariffs by France and Italy, but say they would be fiendishly complex to calculate, create a huge administrative burden and risk trade conflict.

"Border measures risk clashing with the obligations under the World Trade Organisation (WTO)," said one study looking at the cost of increasing EU curbs on climate-warming emissions.

France and Italy are worried that their industries, which pay for EU permits to emit carbon dioxide, will lose out to cheaper imports from countries that impose no such charges.

The Commission said it would continue to look at how imports might be included in the Emissions Trading Scheme, the EU's carbon market and its main tool against climate-warming emissions. But the prospect of such measures looks dim.

"The introduction of border measures may also trigger retaliatory measures and even hinder international negotiations," added the document, seen by Reuters. "The system could at best only be envisaged for a very limited number of standardised commodities, such as steel or cement."

Sanjeev Kumar at environmental think-tank E3G said: "This is pretty much the death of the border-tax adjustment discussions in Europe. We've known for a long time it would put the whole European economy at risk."

Eco-imperialism

Border tariffs on countries that do not play their part in fighting climate change are a hot topic in the United States, where legislators are weighing up their own climate laws.

"Similar proposals are also being discussed in the US, and obviously any further political and operational steps taken in this direction should be taken together," said a related EU draft.

Folker Franz, of industry group BusinessEurope, said: "In a theoretical world where Japan, the US and Europe could move together, then it might work. But if Europe imposed tariffs alone it would not."

Germany, as one of the EU's biggest exporters, is worried about retaliation. Berlin last year criticised the idea of carbon tariffs as "eco-imperialism".

French President Nicolas Sarkozy and Italian Prime Minister Silvio Berlusconi wrote to the European Commission two weeks ago calling for trade levies, but said they should respect WTO rules.

The Commission draft says that although levies could be made WTO-compliant, in theory, it would be almost impossible to tailor them to individual imports without knowing the carbon emissions up and down the manufacturing process -- and monitoring those emissions "may be unfeasible".