Insight
The EU should remove tariffs on environmental goods by Sam Lowe and John Springford, 27 January 2022
Multilateral negotiations over free trade in environmental goods collapsed in 2014. The EU should try again – and reduce tariffs unilaterally if talks fail. The European economy must rapidly decarbonise to meet its climate goals and contribute to the global efforts to combat climate change. This means raising energy efficiency, shifting away from fossil-fuel intensive power generation, electrifying transport systems and deploying new technology such as hydrogen and carbon capture and storage. But ensuring that companies and consumers can readily and cheaply access environmental goods – goods intended to help protect the environment and better manage natural resources, such as batteries, electric motors and heat pumps – should also be an EU priority, regardless of where the goods come from. The need to decarbonise quickly can clash with other strategic priorities. The EU aims to develop innovative green companies, protect them from foreign competition, at least initially, and level the playing field by offsetting foreign governments’ support for their own green businesses. Increasingly, EU leaders also want to reduce reliance on some imports, such as batteries, and make it harder for China to expand its global market share in some goods, such as high-speed trains. Balancing these competing objectives is tricky. However, climate change is an emergency: reducing the cost of green goods for EU consumers would lead to faster cuts to emissions. The EU charges a tariff of zero on imports of solar panels (unless subject to anti-dumping duties), and free trade has contributed to the rapid fall in their price. Removing tariffs on environmental goods, preferably multilaterally, should be higher up the EU’s trade agenda. The EU imposes tariffs on a number of environmental goods such as a 2.2 per cent tariff on heat pumps and a 2.7 per cent tariff on wind turbine rotors (these products are also often subject to additional antidumping duties, whereby the EU imposes higher tariffs on imports from particular countries that are priced below fair market value). A 10 per cent tariff is levied on electric vehicles. And overall, the average trade-weighted tariff the EU applies to environmental goods is 1 per cent – that is the average tariff adjusted for how much trade there is in each good, so a high-tariff but little-traded good does not skew the figure (Chart 1).
CER INSIGHT: The EU should remove tariffs on environmental goods 27 January 2022
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