According to Reuters, The European Union reached a political agreement on Tuesday to impose a carbon dioxide emissions tax on imports of polluting goods such as steel and cement, a world-first system that is designed to support European companies as they decarbonize.

At around 5 a.m. in Brussels, EU countries and the European Parliament reached a deal on a law to impose CO2 emissions costs on imports of iron and steel, cement, fertilizers, aluminum, and electricity.

What is the carbon border tax?

A carbon border tax is a type of tax or tariff that is imposed on imports from countries that have less stringent carbon emissions regulations than the country imposing the tax.

Tariff prices are determined by the amount of emissions generated by a product and the price difference between carbon in the EU and the country from which the product comes.

Importers who import non-EU products into the EU would have to pay this tax.

The goal of a carbon border tax is to level the playing field for domestic producers and protect them from competition from countries with lower carbon prices. This type of tax is intended to encourage countries to reduce their carbon emissions and transition to cleaner forms of energy.

Mohammed Chahim, European Parliament’s lead negotiator on the law, said the border tariff would be crucial to EU efforts to fight climate change.

“It is one of the only mechanisms we have to incentivise our trading partners to decarbonise their manufacturing industry,” Chahim said.