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Insights
CBAM, known as the Carbon Border Adjustment
Mechanism, aims to incentivize non-EU producers to reduce emissions by imposing
a carbon tariff on goods imported into the EU.
CBAM is an important part of the "Fit
for 55" package, a set of proposals to revise and modernize existing EU
legislation to ensure that EU policies are in line with the EU climate targets
(to reduce net greenhouse gas emissions by at least 55% by 2030).
The draft CBAM plan was first published in July 2021, and after more than a year of discussion and gambling, on December 13, 2022, the Council of the European Union and the European Parliament reached a provisional political agreement on the Carbon Border Adjustment Mechanism (CBAM). In April 2023, the CBAM bill was formally adopted and implementation.
From October 1, 2023, CBAM entered into a
transition period. During this period, importers will only be required to
fulfill their reporting obligations and will not be required to pay carbon
tariffs. Starting from 2026, January 1, CBAM will be officially implemented,
when importers will not only be required to continue submitting reports on
time, but will also be required to pay the corresponding carbon tariffs, and at
the same time, the Emission Allowances of the EU ETS will be reduced gradually
until 2034 when they will be withdrawn completely.
According to the CBAM Act, six major categories of imported goods, namely steel, cement, fertilizers, aluminum, hydrogen and electricity, are currently involved. During the transition period, the EU will also continue to evaluate other products in the light of the effects of implementation, and may expand the scope of the levy when it is formally implemented.
Where the CBAM certificate price is the
average of the closing price of EU ETS allowances per calendar week on the
auction platform, which will actually be measured as the difference between the
carbon price in the EU market and the carbon price in the recognized producing
country, and the carbon
emissions are equal to the actual carbon
emissions of the product minus the free carbon allowances received for similar
goods in the EU. In other words, importers will be able to deduct the CBAM
carbon tax if they can prove that they have paid the carbon cost in the country
of production.
EU importers are directly regulated by CBAM,
and carbon tariffs are also paid by the main body, EU importers. Exporters are
required to fulfill their obligation to report the carbon footprint of their
products, and if the carbon emissions of their products are not measurable, the
default value of the average emission intensity of the exporting country is
preferred for the calculation; if this data is also not available, the average
emission intensity of the worst-performing X% of the European Union is used as
the default value and X should be kept at an appropriate level.
Carbon Leakage
Carbon leakage describes the phenomenon
where emission reduction efforts in one region are partially or fully offset by
increased emissions in other regions. There are three typical scenarios of
carbon leakage:
1. The implementation of strict emission
reduction policies in a country objectively raises the cost of emissions in the
country, and enterprises often choose to move their production activities to
countries with low emission costs in order to obtain cost advantages, which is
manifested as "relocation of enterprises".
2. The implementation of strict emission
reduction policies in a country increases the production costs of domestic
enterprises and weakens the competitive advantage of their products, thus
making imported products with low emission costs hit the domestic market, which
is manifested as "carbon dumping".
3. The implementation of stringent emission
reduction policies by a country will objectively reduce the demand for
high-carbon energy, depress global fossil energy prices, and indirectly promote
the increase of fossil energy consumption in countries with lax emissions,
leading to the intensification of global greenhouse gas emissions.
When there is no CBAM constraint, importers
only need to pay the production cost. In contrast, producers within the EU will
not only have to pay for production costs, but also need to buy EU carbon
allowances, with a higher total cost, and intra-EU firms will lose price
competitiveness.
After the application of CBAM, importers
need to pay the cost price and additional carbon price no matter they buy
products inside or outside the EU. This move is intended to set up trade
barriers from the carbon dimension to avoid carbon dumping of imported products
from other countries and squeezing the survival space of local enterprises, and
at the same time, through the pricing mechanism, to promote the construction of
the global carbon market and the global emission reduction process.
Therefore, the carbon border adjustment
mechanism, as a kind of institutional arrangement to prevent "carbon
leakage", is essentially a trade policy, and its logical motive is to
solve the problem of international coordination of carbon emission reduction.
With CBAM（No
More Carbon Leakage）
CBAM is both an opportunity and a challenge
for businesses.
On the one hand, enterprises should
actively establish a carbon emission management mechanism, grasp their own
carbon emission data, reassess product costs and selling prices; accelerate the
application of green production technologies to reduce product carbon emissions
and improve product competitiveness.
On the other hand, enterprises should pay
attention to international, especially European and American low carbon rules,
and make timely response to market changes; at the same time, they should
explore more sales markets to resist the risk of single market.
Government
First, the pace of carbon market
construction should be accelerated, and relevant industries should be included
in the national carbon market. The Ministry of
Ecology and Environment has held several working meetings related to the
"Special Study on Expanding the Scope of Industry Coverage in the National
Carbon Market", and the inclusion of relevant industries in the emission
control market is imminent. If it can be proved that the carbon cost has been
paid in the country of origin, CBAM allows the deduction of emission tax.
Secondly, China's carbon price should be
controlled in a reasonable range. At present,
China's carbon market has not yet established a perfect price discovery
mechanism, carbon pricing is too low, will not be able to play an effective
role in restraining enterprises, affecting the process of realizing the
dual-carbon goals; carbon pricing is too high, it is easy to hit the
enterprise's enthusiasm for low-carbon production, weakening the
competitiveness of the enterprise, and harming China's economy. Only an
appropriate carbon price can steadily promote high-quality carbon peaking and
sustainable development of China's economy, and at the same time, help
enterprises effectively respond to the challenges brought by CBAM and avoid the
risk of double taxation.
Finally, the establishment of an
international mutual recognition system for carbon prices should be promoted. China's current quotas are issued free of charge, and it is
difficult to be recognized as having paid carbon costs. The Government should
actively engage in external communication, enhancing the
power of discourse on carbon rule-making, and promote China's carbon
pricing mechanism to be recognized by the international system, so as to avoid
enterprises being subjected to multiple carbon constraints that make it
difficult for them to survive. This is not only related to the ability of enterprises
to flexibly respond to the increasing challenges of green trade barriers in the
future, but also to the green and healthy development of our economy.
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The Double Carbon Research Center is rooted in the engineering consulting industry, introducing the "carbon dimension" into its consulting framework. It explores the fusion of "carbon + engineering" in service offerings and delves deep into the forefront of digitalization and decarbonization. By embodying the concept of double carbon throughout the entire service process, the center aims to facilitate efficient industry-academia research collaboration, leading the industry's digital and ecological development. The ultimate goal is to contribute to the realization of the 3060 targets through the strength of enterprises.
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