Is the World’s First “Carbon Tariff” Coming?
On March 15, the Council of the European Union announced that the EU Carbon Border Adjustment Mechanism (CBAM) was approved. The mechanism is colloquially known as a “carbon tariff.” Once the EU CBAM is implemented, it will become the world’s first “carbon tariff”.
However, the industry is generally concerned that a unified carbon market pricing system has not yet been formed in the world. If the EU unilaterally implements a “carbon tariff”, it is likely to lead to new trade disputes.
CBAM has been full of controversy
The Carbon Border Adjustment Mechanism (CBAM) is not actually a “first initiative” by the EU. It was one of the topics discussed by all parties at the beginning of the international climate negotiations. This mechanism refers to the requirement to pay or refund corresponding taxes or carbon quotas for imported or exported high-carbon products based on the implementation of strict climate policies in China.
In fact, the CBAM has been full of controversy. Supporters believe that the implementation of the mechanism can reduce the risk of “carbon leakage”; opponents believe that the mechanism is a form of trade protectionism in disguise.
One step closer to implementation
Since the European Union launched carbon emissions trading in 2005, it has begun to discuss legislation for “carbon tariffs”.
In 2019, European Commission President von der Leyen promoted the inclusion of CBAM in the EU Green New Deal since he took office.
In 2020, the European Commission submitted the CBAM impact assessment report and opened it for public comment.
In 2021, the European Parliament voted to establish CBAM, and then the EU made carbon neutrality a mandatory legal binding. The EU CBAM also obtained “legal” status.
In July 2021, the European Commission put forward a series of legislative proposals called “Fit for 55” based on climate goals, covering policy revisions in energy, industry, transportation, buildings and carbon emissions trading systems, among which formal Announced the CBAM proposal details.
In March 2022, the Council of the European Union adopted the “General Guidelines” for CBAM, and CBAM is one step closer to implementation.
Coverage will include all products in the EU carbon market
The European Parliament’s resolutions on CBAM include: First, the coverage of CBAM will include all products under the EU carbon market, including steel, cement, glass, ceramics, and fertilizer industries; second, the benefits brought by CBAM will be used to support The goals of the Green New Deal; three, CBAM will not be abused by trade protectionism.
The European Commission’s draft CBAM legislation includes cement, steel, electricity, aluminum and fertilizer as the first industries to be included in CBAM, and has set up a transition period. During the transition period, the imported goods in the above industries will only submit information and do not need to pay the corresponding fees. , after the transition period, importers need to pay for the emissions of their imported products, and the EU will consider whether to expand the scope of the covered industries.
According to EU estimates, the implementation of CBAM will bring in 5 billion to 14 billion euros in revenue each year.
However, this time, the EU Council has temporarily shelved three issues through the CBAM plan: one is the timetable for the abolition of free carbon emission quotas, the other is the income distribution plan for the carbon border adjustment mechanism, and the carbon cost “tax rebate of the EU’s export products” “question.
Industry worries spark new trade spat
The European Commission stated that, as an important part of the EU carbon market reform, the main purpose of CBAM is to solve the problem of “carbon leakage” under the EU carbon market mechanism. At the same time, it will also encourage EU trading partners to establish corresponding policies to jointly combat climate change.
Bruno Le Maire, French Minister of Economic Affairs, Finance and Recovery, said: “The EU Council’s initial agreement on CBAM is a victory for European climate policy, which will provide European industry with the tools to accelerate decarbonization and protect the climate of EU countries. Actions that are protected from outside influences will also inspire countries outside the EU to commit to reducing emissions and implementing sustainable development.”
However, there are widespread concerns in the industry that the EU’s first implementation of CBAM may trigger new trade disputes around the world. Some people in the industry believe that the implementation of carbon tariffs will increase the export cost of related products and put pressure on the industry. At the same time, policies similar to the EU’s carbon border adjustment mechanism have a tendency to trade protectionism, or become part of some countries to protect local industries and suppress competitors. s method.
The Bruegel Institute has published an article pointing out that the EU’s carbon border adjustment mechanism is likely to trigger trade disputes. Australia is even more openly opposed to the EU’s introduction of a carbon border adjustment mechanism, calling it a “trade protection measure”. Other countries such as Thailand, South Korea, and the Philippines questioned that the EU’s move is to impose unilateral standards on other countries.
Fu Sha, director of the Energy Foundation’s Low-Carbon Transformation Project, pointed out that the EU’s original intention to launch CBAM is inseparable from its carbon market reform, including helping local companies improve their competitiveness. “The EU should also take into account the concerns of all walks of life about trade disputes, which are reflected in the design of the corresponding clauses. For example, the levy of fees is not for imported products, but for its local importers. However, this cannot prevent the passage of these clauses. This will lead to an increase in the cost of imported products. In addition, the EU has also minimized the concerns of all walks of life by selecting industries, limiting direct emissions, and setting up a transition period. At present, the impact on its surrounding trading partners may be more obvious. Industries covered in the first phase will also be affected.”
In addition, Fu Sha believes that China’s carbon market can also learn from the development process of the EU carbon market. “For example, at the beginning of designing the carbon market, taking into account how to reduce the impact on the domestic economy while reducing emissions, make corresponding quantitative analysis in advance. In addition, based on the specific situation, determine which industries should be prioritized into the carbon market, such as The industries that have been included in the first phase of the EU’s carbon border adjustment mechanism will help relevant companies obtain corresponding reductions.”
It is worth noting that the adoption of CBAM by the EU Council does not mean that it has completed the legislative process as a “carbon tariff”. According to Fu Sha, this shows that after the European Commission, the European Council has also formed its own “carbon tariff” plan. The next step is to wait for the European Parliament to determine the corresponding plan, and then conduct tripartite consultations before the final legal text can be obtained.
Originally published at https://www.tlw.com.