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Interview

EU climate head says carbon border tax unlikely to hit Japan

Timmermans: Discussions ongoing with partners to coordinate carbon systems

Frans Timmermans, a European Commission executive vice president, called for further talks with international partners on climate change. (Photo courtesy of the European Union)

LONDON -- Japan will almost certainly escape a new European Union carbon border tax on imports from polluting industries, the bloc's top climate official told Nikkei Asia.

Frans Timmermans, a European Commission executive vice president, called for further talks with international partners -- including Japan -- on measures to coordinate pricing and cut carbon emissions.

The new EU rules, known as the Carbon Border Adjustment Mechanism (CBAM), have alarmed governments and companies that export goods to the European bloc from energy-intensive industries such as steel.

But Timmermans insisted Japan's domestic green agenda meant it was unlikely ever to become a CBAM target because of "carbon leakage" -- the risk that manufacturers could move production to countries with laxer environmental standards.

"Given the fact that Japan is actually aligned with the European Union in its ambition to decarbonize its economy by 2050, I think it is highly, highly unlikely that we would ever have a discussion about CBAM between the European Union and Japan because [of] the risk of carbon leakage," he said in an interview. "If you all move in the same direction at more or less the same pace, the risk of carbon leakage is absent."

In July, the European Commission -- the bureaucracy of the 27-member EU -- adopted a sweeping set of climate policies known as the European Green Deal. These include the CBAM proposal to put a price on carbon emissions in the production process of certain imports. The plan would start with iron and steel, cement, fertilizer, aluminum and electricity generation.

The EU is set to be the first significant economic power to implement such a policy. It is part of a wider debate on cutting carbon emissions ahead of the United Nations' global climate conference in the Scottish city of Glasgow in November.

The EU's proposed carbon border tax has caused concern among industries likely to be affected in Asia, such as steelmakers in Korea, India and China. Critics charge that it is a protectionist trade measure to level the playing field for EU industries facing increased production costs due to higher carbon pricing.

Timmermans, a former Dutch foreign minister, said discussions were already underway between the EU and its partners -- including Japan and the U.S. -- on the CBAM and how to coordinate efforts in the area. "My proposition to our partners worldwide is to discuss how we can jointly do this," he said.

"If we can discuss with Japan, with the United States and with others [about avoiding carbon leakage on a global level] or between trading partners, I think that would be a clear signal to the rest of the world," Timmermans said. "Hopefully other major economies will then also think: How can I avoid being singled out because I stimulate carbon leakage by not decarbonizing my economy?"

The U.S. has been mulling a carbon border tax. During his presidential campaign, President Joe Biden supported a form of "carbon adjustment fees or quotas" on imported carbon-intensive goods from countries that do not meet environmental obligations.

Timmermans stressed that the EU's carbon border tax would be in line with World Trade Organization rules and would include a trial phase to give companies time to prepare.

The Japan Automobile Manufacturers Association Chairman and President of Toyota Akio Toyoda speaks at online press conference on Sept. 9. Toyota criticized proposals that regard internal combustion as the "enemy," rather than carbon emissions.   © Kyodo

The CBAM is intended to start its trial phase in 2023 and be fully operational by 2026. EU importers would then need to pay for greenhouse gases emitted during production unless carbon prices have already been paid in the origin country.

According to the World Bank, 45 national jurisdictions across the world have already implemented, or are in the process of implementing, a form of carbon pricing.

"[The trial phase] gives us and our trading partners time to assess whether they will be hit by this, potentially, and if yes, what could be done to avoid that from happening," Timmermans said. "We'll take the time and then I think this gives ample opportunity to our partners to assess whether they feel they're unduly hit by this and then find solutions together."

The CBAM plan has also stoked fears that it could hit poorer countries where companies have less capacity to adapt. A United Nations Conference on Trade and Development report in July warned that lower income nations where industries remain carbon-intensive could experience a decline in exports.

"We need to try to have an economic development where the developing world leapfrogs over a number of developments we have had, which have led to a huge increase of emissions," he said. "The developing world would do itself a huge disservice if they would repeat all our mistakes with coal-fired power generation or other heavy pollution methods," he added.

Another potential flashpoint triggered by EU climate policies is the bloc's aim to have zero CO2 emissions from new cars by 2035, effectively banning new vehicles with internal combustion engines.

The Japan Automobile Manufacturers Association Chairman and President of Toyota Akio Toyoda recently criticized proposals that regard internal combustion as the "enemy," rather than carbon emissions.

Timmermans, whose first three cars were Toyotas, said he was a great fan of autos. He insisted the EU was "technology neutral" and was interested only in cutting emissions. He said hydrogen-powered fuel cells would be "an important part of our transport mix."

"If the car industry has a way of building cars that have no emissions with another technology than either batteries or fuel cells, we're more than happy to accept that," he said. "Our goal is not to prescribe what technology; our goal is to make sure that we reduce emissions from transport 90% [by 2050]."

Although in Europe the dominant force is battery-powered vehicles, he welcomed if others have different solutions that also lead to zero-emission mobility. He added that once filling station networks are established, "I think hydrogen that powers fuel cells -- not hydrogen that powers internal combustion engines -- will be an important part of our transport mix."

World leaders will congregate in November for the 26th U.N. Climate Change Conference of the Parties (COP26). This will focus on measures to limit global warming to below 2 C, and preferably to 1.5 C, compared with preindustrial levels.

Timmermans pointed to the importance of China, which he said accounts for about 25% of global emissions, compared with about 8% from the EU and 3% from Japan.

Coal is another contentious topic that the EU hopes to strike a deal on at COP26. Timmermans praised Japan's "beautiful sign of leadership" in committing to the goal of the G-7 leading industrialized nations to end government support for coal-fired power generation.

According to Timmermans: "Japan has been courageous, forward looking, and I think Glasgow should produce something on the fact that the world needs to get rid of coal. ... If no effort is made by China, then all our efforts will only have a very, very limited -- and a too limited effect -- on the reduction of emissions and therefore on the rise of the temperature."

"It is a matter of survival of humanity to convince also countries like China and India to go into the same direction," he added.

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