On May 17, the text of the Carbon Border Adjustment Mechanism (CBAM) bill was officially published in the EU Bulletin.
This means that the EU carbon tariff came into effect on May 18!
What is a carbon tariff?
Carbon tariff is the carbon border adjustment mechanism, which means that the EU charges products with higher carbon emissions imported from third countries according to the carbon emissions of imported products.
The bill was first introduced by the EU Green New Deal in December 2019. Subsequently, after evaluation, consultation and other procedures, the European Commission's "Fit for 55" emission reduction package was formally proposed in 2021. The goal of the
plan is to reduce carbon emissions by 55% by 2030 compared with 1990. The package includes not only the establishment of a carbon border adjustment mechanism (CBAM), but also the reform of the EU carbon trading system and the establishment of a climate fund. On April 18,
2023, the European Parliament passed a package of five bills.
Subsequently, on April 25, the European Council voted to adopt the carbon border adjustment mechanism, marking the formal completion of the legislative process of the bill, which will enter into force the next day after its official publication in the EU Bulletin.
According to the current data, the carbon tariff will initially apply to industries with carbon-intensive production processes and high risk of carbon leakage, such as cement, steel, aluminium, fertilizer, electricity and hydrogen. After full implementation in stages, it will involve more than 50% of the carbon emissions of industries covered by the EU Carbon Emissions Trading System (ETS).
In response, the Council of the European Union said that the carbon border adjustment mechanism, as the first agreement to impose carbon tariffs, would encourage non-EU countries to participate in climate change action.
How to implement?
According to the current agreement, carbon tariffs will be put into trial operation on October 1, 2023, with a transition period until the end of 2025, and will be formally imposed on January 1, 2026 until 2034. After 1
January 2026, importers will be required to declare annually the quantity of goods imported into the EU in the previous year and their implied greenhouse gases, and they will then purchase the corresponding number of CBAM certificates. The price of the
certificate will be calculated on the basis of the weekly average auction price of EU ETS allowances, expressed in EUR/tonne of CO2 emissions.
At the same time, free quotas in the EU emissions trading system will be phased out after 2026, and the speed of elimination will be consistent with the speed of carbon tariffs. In the meantime, importers will only have to pay for the portion of emissions that European manufacturers do not receive for free.
Disguised tariff? Or an environmental pioneer?
Although the European Union claims that CBAM is another milestone they have reached in promoting carbon emission reduction, it is only "an environmental policy tool, not a tariff". But from the effect, it is far more than that.
For other countries, the implementation of CBAM will raise the threshold for their products to enter EU countries and reduce the market competitiveness of their products in the EU, which is a disguised act of raising trade barriers.
Taking China as an example, as the largest importer of the EU, the trade volume between China and the EU reached 847.3 billion US dollars in 2022, an increase of 2.4% over the same period last year, which means that the average trade volume between China and the EU exceeded 1.6 million US dollars per minute.
Among them, 80% of the carbon emissions of China's intermediate products exported to the EU come from metals, chemicals and non-metallic minerals, which belong to the high leakage risk sector of the EU carbon market. Once included in the carbon border regulation, it will have a huge impact on exports.
In 2022, China exported 1.018 billion tons of steel products to EU countries, involving a total amount of 6.44 billion US dollars. According to industry forecasts, if the EU's carbon tariff rate is about 5%, according to the export amount in 2022, Chinese steel enterprises need to pay 322 million US dollars of carbon tariffs to the EU.
Although from the perspective of trade, the implementation of CBAM is far less pure than that claimed by the European Union, on the other hand, we should also see that CBAM plays a positive role in accelerating the benchmarking of countries, improving their carbon trading system and green low-carbon transformation of carbon-intensive industries.
This will be a huge opportunity for new energy industries such as photovoltaics .
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