On March 10, 2021, the European Parliament passed a resolution with an overwhelming majority for creating a carbon border tax, with 444 votes in favor, and 70 votes against it. The move is expected to help the EU to considerably decrease its carbon emissions and reach its goal of net-zero carbon emissions by 2050.

The carbon border tax would apply to energy-intensive industries such as electricity, cement, and steel at the start and could later be extended to other industries, including aluminum, fertilizers, chemicals, etc. It would protect companies in the EU against cheaper imports from countries with weaker climate policies. The policy intends to ensure that imports from outside the 27-country bloc do not have an unfair advantage if they are manufactured with a bigger carbon footprint. The policy to use tax as a tool to reduce carbon emissions found widespread support with 43 percent of the respondents in a GlobalData poll supporting the plan.

However, 40 percent of the respondents in the poll voted against the move. The ‘BASIC’ nations – Brazil, South Africa, India, and China – in a jointly released statement called the carbon border tax unfair and is not aligned with principles of equity as per the Paris climate agreement. A few concerns such as carbon leakage were also raised. Carbon leakage occurs when the companies in the EU block shift their production to other non-EU countries with lesser stringent emission regulations. Another concern is the possible loss of competitiveness to non-EU competitors, whose manufacturing cost for the same product could be substantially lower. Others argued that this policy is a move towards protectionism, masked as climate action.

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By GlobalData