CBAM’s Implications for Global Trade Already Growing

6 November 2023

 

On 1 October, the EU’s landmark Carbon Border Adjustment Mechanism policy (CBAM) came into force, and UK exporters are busy working out how to come to terms with it.  There are even indications that the USA will follow suit, with a version of its own.

The implications are far-reaching.  CBAM marks a significant change in the international trade landscape.  Its purpose is to ensure that the EU's climate policies are not undermined by production from countries with less ambitious green standards. By imposing fees or tariffs on imported goods based on their carbon emissions, CBAM aims to prevent unfair competition from less-regulated producers.  It stands to be one the EU’s most powerful tools for encouraging global industry to embrace greener, and more sustainable, technologies.

Global response

CBAM’s impact could become greater still.  Speaking in 2022, US trade representative Katherine Tai said, “There are a lot of concerns coming from our side about how this is going to impact us and our trade relationship”.  There is already bipartisan support among US lawmakers for creating a CBAM-type regime there. As a result, the US could also impose import fees or tariffs based on carbon emissions from the country of origin. Details are still being determined, but it is likely that the US will implement a similar policy to the EU’s, to address carbon emissions and protect domestic industry.

New reporting

In this, CBAM’s early “transitional” phase, only imports into the EU of cement, iron, steel, aluminium, fertilisers, electricity and hydrogen, are subject to the new regulations. EU importers now have to report on the volume of these imports, and the greenhouse gas emissions embedded in them during production, but don’t yet need to pay any financial adjustments. A new CBAM transitional registry became available on 1 October to help EU importers perform and report their calculations, and the EU Commission is gradually making sector-specific guidance available. 

From 2026, EU importers will need to buy and surrender “CBAM certificates” corresponding to the greenhouse gas emissions embedded in relevant imported goods – a system similar to carbon offsetting and the use of carbon credits.

CBAM will undoubtably affect global trade and consumer prices in the long-term. Less-regulated steel producing countries, most notably China, may well challenge it at the World Trade Organisation. CBAM’s explicitly green agenda may mean that it gains international support, and that trading blocs decide it is better to develop their own localised versions, rather than challenging it head-on.

To help businesses, Chamber International will hold a workshop on CBAM and its likely impact, on 6 December 2023 from 1:30pm to 4:30pm.

Click here for more information.

 

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