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Protect the climate without endangering jobs?

Ursula von der Leyen, President of the European Commission, believes she has found a recipe for it.

Before the climate goals in Europe become gradually stricter in the coming years and decades and the price that companies in the EU pay for the emission of greenhouse gases increases drastically and makes production more expensive, they want to build a climate protection wall around the continent.

A so-called CO2 border adjustment is intended to make imported products that are more harmful to the climate overseas than in Europe more expensive at the borders of the EU.

The CO2 surcharge at the border is intended to ensure that European producers, with their higher energy costs, can remain competitive on their home market.

Companies that export their products manufactured in the EU to the rest of the world could similarly relieve part of the burden of the expensive climate policy so that they can still be competitive in other markets.

Without protection, producers could migrate

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It is a demanding undertaking and it is not yet clear how such a compromise should look without creating resistance from overseas and new trade wars.

In the spring, however, the Vice-Presidents of the Commission responsible for trade and climate, Valdis Dombrovskis and Frans Timmermans, intend to present the authority's proposals for a corresponding regulation.

The climate protection wall should already exist in 2023.

The roadmap is considered ambitious and practically impossible to adhere to, but the Commission is setting the pace for a reason: the border adjustment is a core element of the Green New Deal.

Without this protection, the EU's ambitious climate targets endanger the survival of domestic producers in many energy-intensive areas.

The consequence could be that European companies migrate to countries where they can produce more cheaply, and there may be more harmful to the climate than in Europe.

Experts call this phenomenon carbon leakage.

Risk for export-oriented manufacturers

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However, economists are now warning Brussels to pursue the project single-handedly.

Otherwise the project threatens to become expensive and bureaucratic, to endanger the existence of many companies - and, above all, to achieve little in terms of climate protection.

In an analysis, researchers at the Institute for the German Economy, which is supported by companies and employers, warn against a unilateral European border adjustment.

“If the trading partners see the border taxes as a protectionist measure, they could file a lawsuit with the World Trade Organization and initiate retaliatory measures.

This is a particular risk for export-oriented manufacturers in all sectors in Europe, ”write the authors Thilo Schaefer, Roland Kube and Galina Kolev.

Instead, a coordinated international approach is necessary.

Economists advise the EU to set up a climate club

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The authors of the analysis, which is available to WELT, also warn of the considerable bureaucratic effort that is necessary to determine the extent to which greenhouse gases were produced in the production of certain goods.

For this reason, the border adjustment should only be applied to a few emission and trade-intensive raw materials, such as steel or cement.

Economists are not alone in their concerns.

The Scientific Advisory Board of the Federal Ministry of Economics also advises against a hasty European solo effort in a current report.

Instead, the EU should form a climate club with other large economic blocs - a kind of climate free trade area.

Otherwise, depending on the design of the CO2 lock, there is a risk of expensive and time-consuming bureaucracy or trade conflicts.

Above all, however, the ambitious climate policy of the EU could fizzle out if companies migrate because of the high energy prices, warns Klaus Schmidt, the chairman of the committee.

“It cannot be about Europe building a climate fortress,” says the economist Gabriel Felbermayr, who is also a member of the advisory board.

The USA under the new President Joe Biden are a natural partner for such a climate club, because Biden has not only promised a national CO2 price, but also a border adjustment.

Time is of the essence, warns Felbermayr.

The legal texts are currently being written in the USA, so now is the time to initiate a climate club.

The core of the association would have to be the EU and the USA, as well as Mexico, Canada and Great Britain, which are linked with the USA in a free trade area.

At best, China would also be one of them.

Such negotiations are likely to be tough.

It would then be very unlikely that the border adjustment will already be in place in 2023, as Brussels is planning.