The EU proposes a carbon tariff on some imports

WHEN THEEUEUCBAM European Union established its cap-and-trade scheme for pricing carbon emissions in 2005 it faced a tricky design problem. Making polluting firms buy permits puts them at a disadvantage in global markets. Companies might respond to the scheme by moving their dirty activities offshore, causing “carbon leakage”. And if producers in places with lax environmental standards outcompeted European firms, global emissions would go up. The solved the problem by offering subsidies and free pollution permits to some dirty industries exposed to trade.Those handouts, however, have always had a target on their back. On July 14th officials set out a plan to phase them out and replace them with a “carbon border-adjustment mechanism” (). Between 2025 and 2035, producers of aluminium, cement, fertilisers and steel will gradually lose their subsidies. But importers of these goods will have to buy a new category of pollution permit. How many they need will depend on the amount of carbon estimated to have been emitted during the production of the goods. The policy is in effect a tariff, intended to compensate for the fact that foreign firms may face no carbon price, or one that is lower than Europe’s.