As its name suggests, the carbon tax aims to tax carbon, or rather to tax goods whose production generates CO2 emissions, the main cause of rising global surface temperatures and the resulting climate disruption.

To date, little account has been taken of these negative consequences, or externalities, associated with CO2 emissions. Indeed, greenhouse gas (GHG) emissions, foremost among which is CO2, are currently poorly regulated, which implies a carbon price implicitly close to 0.

This is where carbon pricing comes in, of which the carbon tax is an instrument, as is the EU emissions trading scheme .

By putting a price on carbon, these mechanisms send a price signal to consumers and businesses, penalizing the goods and services that emit the most CO2 and directing capital (investment, consumption) towards those that emit less. And the revenues generated by these mechanisms provide governments with the resources they need to undertake the energy and ecological transition.

The carbon tax at the European Union's borders has several objectives:

• Penalize the most CO2-intensive exports to the EU (the idea is to penalize imports whose carbon intensity exceeds European standards).
• To put European companies, which are subject to increasingly demanding and costly environmental regulations, on an equal footing with companies based outside the EU, which often benefit from a less stringent framework enabling them to produce at lower cost. The aim is therefore to limit "carbon leakage", an expression used to describe the relocation of industries that emit the most CO2.
• Impose, in some way, a floor price on CO2 emissions.

This project, initiated by members of the European Parliament, will soon be in the hands of the European Commission, which will formulate its proposal in June, after which it will be submitted to the member states. This border carbon tax could come into force in 2023.

The carbon tax must be seen in the context of another mechanism, the European Union Emission Trading System (EU ETS), already in force within the European Union.

Launched in 2005, this system is also known as the "rights to pollute" market, since the general idea behind it is to allocate a maximum amount of CO2 emissions per year (quotas) to the sectors that emit the most (steel, chemicals, power generation, construction), with the total number decreasing each year to meet emission reduction targets.

If a company generates more emissions than the quotas allocated to it, it has to buy the difference, which amounts to penalizing it.

The idea of this mechanism is rather to limit the maximum level of CO2 emissions, by organizing the scarcity of allowances, which determines the equilibrium level of the CO2 price on the market.

In the European emissions trading market, allowances are distributed to the various companies concerned in two ways:

• Free allocation for sectors (steel, cement, etc.) subject to foreign competition
• Auctions for other companies (notably in the electricity sector) generate tax revenues for governments. Government revenues from these auctions amounted to almost EUR 14 billion in 2019, at least half of which must be used for climate or energy-related purposes, as required by the European directive that created the ETS.

Faced with the limitations of this quota system, the EU has taken several measures, notably to raise the price of CO2 quotas traded on the market and to accelerate the reduction in the ceiling of quotas allocated each year (-2.2% per year during phase 4 of the ETS, from 2021 to 2030).

Obviously, these two mechanisms are complementary. In fact, some MEPs are calling for the abolition of free allocations of emission allowances, designed to limit the carbon leakage mentioned above, which would no longer be necessary if a border carbon tax were introduced.

Other forms of carbon tax also exist in several European countries, such as Sweden, where a carbon tax is levied on fossil fuels (fuel, heating oil), the UK and even France (since 2014).

In the United Kingdom, which recently left the European Union, the carbon tax introduced in 2013 has led to a drastic fall in the share of coal in energy production (from almost 40% in 2012 to less than 2% in 2019*), combined with a significant increase in the share of renewables. In concrete terms, this tax imposes a minimum carbon price on electricity producers, which is set to rise over time.

For France, this is a carbon component integrated into the calculation of taxes on energy products (natural gas, coal), whose regular increase is provided for by law. In 2018, the French government had planned to accelerate the increase in this tax, provoking the outbreak of the Yellow Vests crisis. While the government has decided to cancel the increase in this tax, it has not disappeared.

As current discussions at European level show, identifying the sources of CO2 emissions is central to understanding climate issues. This is the first step towards achieving the emission reduction targets to which France and the EU have committed, with a view to limiting climate disruption.

That's why Keewe created the Photo Carbone, to enable our customers to easily measure their GHG emissions, the first step in initiating your company's low-carbon transition and reaping the many benefits: strengthening your brand, gaining market share, anticipating future regulatory changes, attracting new talent sensitive to their employer's commitment.

To find out more, contact us at climat@keewe.eu