EU Contemplates Carbon Tax for Mexico

Border Carbon Adjustments (BCAs) could influence Mexico’s business with the EU, reports Energía a Debate. The BCA mechanism was designed by the EU Commission to help prevent its industry from being negatively impacted by international competition, as well as to prevent its industry from moving abroad to take advantage of flexible legislation in other countries. This would help the union stop ‘carbon leaks’, where companies pollute outside of the EU.

BCAs have once again become part of the EU’s policy discussions after it adopted its ‘Green Deal’, a wide-reaching economic action and development plan focused on climate change. The plan was presented in 2019 by EU Commission President Ursula von der Leyen and includes the target to make the EU carbon-neutral by 2050. BCAs would foster progress toward this key objective. The proposal is currently in public consultation. An impact assessment is expected to be published in 2021 and ratification of the pact could already be a reality by summer 2021.

Adopting such deep-reaching regulations makes Europe’s industrial sector susceptible to new policies and higher costs. This could result in its producers and manufacturers facing uneven conditions when competing with countries where similar players do not have to spend on measures focused on mitigating emissions.

During an Aug. 27 webinar called “Mexico-EU on Border Carbon Adjustments” by the European Roundtable on Climate Change and Sustainable Transition (ERCST) and the Climate Initiative of Mexico (ICM), experts explained that the BCA has global economic, environmental, legal and political implications. Therefore, the EU wants to gage reactions of its main trading partners, including Mexico, regarding its possible implementation in 2021.

Experts participating in the webinar from European and Mexican groups highlighted that the design of a BCA depends on the evaluation of specific criteria, including environmental benefits, advantages regarding competitiveness, as well as legal, technological and political feasibility. Furthermore, they commented that early designs suggest that the BCA will have an effect on specific goods that the EU currently imports, such as cement, steel and electricity.

While execution is still uncertain and its implications therefore difficult to predict, trends like this highlight how important it will be for Mexico and other countries to meet goals related to the Paris Agreement.