Shutdown: How Covid Shook the World's Economy

by Adam Tooze

As a signal of their seriousness on July 23, the European Commission launched a public consultation on the introduction of carbon border adjustments.62 The year 2023 was envisioned as a possible start date. For emissions from industry and electricity generation, Europe had for the last fifteen years been operating an emissions trading system. Like any other form of quasi money, the value of the emissions allowances depended on the credible commitment to keep the certificates scarce relative to demand. On that score, Europe’s record was, to say the least, checkered. But after many false starts, in 2020, the price of emitting a ton of carbon surged to 30 euros, and the outlook was for further increases.63 This would put Europe’s most polluting power plants out of business. By the same token, it also put cost pressure on what was left of Europe’s manufacturing industry. To offset that disadvantage, it was essential to impose a carbon border tax on imports manufactured with more polluting power abroad. Given that Europe was China’s major export market and that China relied heavily on coal-fired electricity generation, this was an alarming prospect for Beijing.