As the European Union is pushing for the carbon border tax and a Renewable 100 (RE100) campaign, they are emerging as new trade barriers for domestic companies with a high proportion of overseas exports.
Ursula Von Der Leyen, new President of the European Commission, announced the “European Green Deal” as she took office and called for long-term measures to target Europe as the first carbon-neutral region by 2050. The EU has prepared regulations on heat waves, droughts, and abnormal temperatures, judging that they originate from carbon.
The carbon tax is a tax imposed on fossil energy usage, such as oil and coal, which emits carbon dioxide (CO2), to prevent global warming. On the other hand, the carbon border tax is a tax imposed to compensate for the price gap between exports of goods produced in countries with lax greenhouse gas emission regulations to the European countries.
There are two principles of emission regulation. First, the parties who emit environmental pollutants must bear the cost themselves, and second, prevent carbon leakage that occurs when companies transfer to countries with weak regulations.
As fossil energy usage has doubled in previous years due to the COVID-19, Korean steel and petrochemical companies, which emit lots of greenhouse gases, could be taxed when exporting their products to Europe. For example, in 2018, BMW asked LG Chemical to join the RE100 campaign as a condition for parts delivery, and Samsung SDI moved domestic production overseas to utilize renewable energy.
The carbon border tax has the advantage of penalizing countries that are passive in reducing carbon but considering that developing countries are mainly countries with weak carbon emission regulations, many countries object to it because only developed countries benefit from carbon regulations.
The introduction of the carbon border tax is likely to spread further as the Biden administration of the United States officially mentioned it in March 2021. The South Korean government needs to prepare measures to respond to the carbon border tax as domestic steel and export industries with high carbon emissions are expected to be hit hard by the full-fledged carbon border tax from Europe and the United States.