Today is Thursday, December 21, 2023.
You probably heard about CBAM, Carbon Border Adjustment Mechanism, introduced by the European Union to “encourage producers in non-EU countries to green their production processes”. Regardless of past agreements - we quote one below - CBAM is equivalent to taxation, based on how non neutralised carbon emissions are reflected on certain products.
On top of that, during COP28 we became aware of similar initiatives in United Kingdom UK and United States US. And there are probably others.
Here is the chronology.
1992 June, Brazil agreements, “Report of the United Nations Conference on environment and Development. Rio Declaration”
“Principle 12. States should cooperate to promote a supportive and open international economic system that would lead to economic growth and sustainable development in all countries, to better address the problems of environmental degradation. Trade policy measures for environmental purposes should not constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade. Unilateral actions to deal with environmental challenges outside the jurisdiction of the importing country should be avoided. Environmental measures addressing transboundary or global environmental problems should, as far as possible, be based on an international consensus.”
2022 December, Europe, “Carbon Border Adjustment Mechanism (CBAM): carbon price on imported products coming from outside EU”
About deal reached at the European Parliament on the Carbon Border Adjustment Mechanism (CBAM). CBAM set up to equalise the price of carbon paid for EU products operating under the EU Emissions Trading System (ETS) and the one for imported goods. And as such, to mitigate the so-called ‘carbon leakage' risk – i.e. companies based in the EU could move carbon-intensive production abroad to take advantage of lax standards, or EU products could be replaced by more carbon-intensive imports.
Sectors within the initial scope of these new CBAM rules are some of the most carbon-intensive ones, basically iron and steel, cement, fertilisers, aluminium, electricity and hydrogen.
CBAM to apply from 1 October 2023 but with a transition period where the obligations of the importer shall be limited to reporting, with the aim to collect data. By the end of 2027, the impacts of CBAM on imports from developing and less developed countries will be evaluated.
2023 April, Europe, “European Union: new carbon tax on imported goods approved yesterday, among others”
CBAM approved by the European Council, last step of the European Union's decision-making process.
Confirmed that until the end of 2025 the CBAM will apply only as a reporting obligation. Then phased in gradually.
2023 June, Europe, “CBAM arrives at the WTO. With concerns.”
China suggested discussions on CBAM now at WTO's Committee on Trade and Environment (CTE).
United Kingdom suggested "revitalising" the CTE “… multilateral trading system might need to evolve to adequately account for the green transition."
India exposed its concern over the increasing use of environment as a non-tariff measure.
Brazil worried about increasing restrictions to products and expansion of CBAM scope.
United States, CBAM’s impact is likely to be felt most by steel and aluminum exporters.
Turkey, actions calling for EU funding to support the country's alignment with the CBAM.
2023 June, United States, two senators, Whitehouse and Delbene reintroduce “Carbon Border Adjustment Bill to boost domestic manufacturers and tackle climate change”
“For too long, American industries producing goods in a less carbon-intensive way have been undercut by foreign competitors with dirtier production processes”.
“A carbon fee would incentivize industries from around the world to prioritize decarbonization and create a level playing field for American workers in these sectors”.
“Starting in 2025, the adjustment would apply to energy intensive industries, including fossil fuels, refined petroleum products, petrochemicals, fertilizer, hydrogen, adipic acid, cement, iron and steel, aluminum, glass, pulp and paper, and ethanol. In 2027, it would be expanded to include imported finished goods that meet certain weight or value thresholds”.
By the way, during COP28 we could hear live Senator Whitehouse’s views, as you can recall here, topic “USA: Bipartisan Senators Discuss American Action and Challenges Ahead”.
2023 December, United Kingdom (UK). "Factsheet: UK Carbon Border Adjustment Mechanism"
After Brexit, when departed from the European Union, UK has been forced to develop its own UK Emissions Trading Scheme (UK ETS).
And a CBAM, which will be subject to consultation in 2024, in particular related to its design and the precise list of products in scope.
Considering the impact of CBAM on international trade agreements and prices, what do you think it will happen in the short, mid and long terms?
