Export to the European market pay attention! The EU expands its moves and passes the world's first "carbon tariff"!
March 25, 2022
The latest news, on March 15, local time, French President Emmanuel Macron said on his personal social media that EU member states have reached an agreement on the EU carbon border tax.
After the proposal is formally adopted by the European Parliament, it will be implemented from January 1, 2023, and the scope of the levy covers industries such as cement, fertilizer, aluminum and steel. The transition period from 2023 to 2025 will be implemented, and carbon tariffs will be formally introduced in 2026.
As the world's first proposal to address climate change in the form of a carbon tariff, it would have profound implications for global trade.
The Australian Trade Minister has this to say:
"We are very concerned that the EU Carbon Border Adjustment Mechanism (CBAM) is essentially just a new protectionist mechanism that ultimately undermines global free trade and hits homegrown Australian exporters and jobs."
As early as 2008, Krugman, a Nobel Prize winner in economics, put forward a clear assumption on the rationality of carbon tariffs under the WTO framework.
He believes that imported products that do not pay carbon tariffs have an "unfair" competitive advantage, so developed countries that have undertaken mandatory emission reduction obligations have the right to choose to take trade measures at the border, increase the cost of foreign producers of similar products, and impose restrictions on imports. Products are taxed proportionally to the carbon dioxide they contain or emit during production, while tax-exemption or tax rebates are given to products containing carbon dioxide exported from their home country, thus achieving the goal of "leveling the arena".
The EU Carbon Border Adjustment Mechanism (CBAM) requires the import of carbon-intensive products to fully comply with international trade rules to prevent offsetting EU greenhouse gas reduction efforts by importing products made in non-EU countries, which have less climate change policies than the EU strict. It will also help prevent production diversion or importation of carbon-intensive products.
The latest research report of Boston Consulting Group (BCG) deeply analyzes the economic impact of EU carbon tariffs on key industries and finds that the impact of carbon tariffs on industry profits can be as high as 40%, and companies in the entire industry chain will feel the cost increase. Impact.
For external companies exporting to the EU, carbon tariffs will directly affect the competitive landscape, and even change the trade landscape to a greater extent, according to BCG experts. If these companies fail to adapt quickly to the New Deal by reducing their carbon footprint, they could lose market share and be replaced by other EU companies or more carbon-efficient companies in other countries.
The EU CBAM will initially cover five industries including cement, electricity, fertilizer, steel and aluminum. These five industries together account for about 40% of the EU's total emissions.
Of the 44 industries that the EU believes are most in need of carbon reduction, 85% are related to materials, energy and industries that provide raw materials for industrial production processes. In addition, industries such as chemical products, base metals, paper products and non-metallic mineral products, although relatively less dependent on trade, have high carbon emission intensity and will also be directly affected.
Specific EU CBAM covered products are defined in accordance with the European Combined Nomenclature, which is based on the World Customs Organization's Harmonized System Nomenclature. based on.
Please note that 2023-2025 has been identified as a transition period for EU CBAM, during which importers will only have declaration obligations and no financial obligations. During the transition period, importers are required to report on a quarterly basis the quantity of their imported products, their total embodied carbon emissions, their total embodied indirect emissions, and the carbon price paid in the country of origin for the imported products.
From 2026, importers are required to pay the corresponding amount of CBAM certificates based on the embodied carbon emissions of their imported products.
For our companies exporting to Europe, if the products involve five industries of cement, electricity, fertilizer, steel and aluminum, especially the steel industry, we must pay attention to the changes. Last year, my country's adjustment of export tariffs on steel products has significantly reduced the export of low-end and medium-end steel products.
In fact, last autumn's "power cut and production reduction" was already a test for foreign trade. Please note that this is not a short-term thing! Because my country has promised to "strive to peak carbon dioxide emissions by 2030 and strive to achieve carbon neutrality by 2060". This is the trend!
Foreign trade people who are engaged in the export of energy-intensive products, please pay attention to the industry trends, make plans early, and follow the trend is the way out!