2.4. European Union Carbon Border Tax

Because European Union companies are required to purchase permits for climate-warming carbon emissions produced in the process, their production incurs an additional cost that raises the price of the final product.

The goal of the EU ETS is to encourage companies to reduce their emissions. But companies in many other countries - including the U.S. - do not face the same emissions rules, so imports sold in the EU can end up being cheaper.

Therefore, European Union is considering a new tax on imports as it tries to fight climate change - called the border adjustment carbon tax. The tax is designed to level the playing field for European companies by holding imports responsible for their greenhouse gas emissions the same way domestically produced products are. A carbon border tax is intended to prevent such inequality in the market by imposing the same cost on imports that do not face carbon taxes at home. An alternative to additional taxing of foreign goods is a proposal to allow foreign companies to use EUAs in order to offset their emission, which would further increase the demand for CO2 allowances and the need for optimized market access solutions.

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