Yesterday, the European Union announced that the text of the Carbon Border Adjustment Mechanism (CBAM, carbon tariff) bill will be officially published in the EU Official Journal. CBAM will come into force the day after the publication of the Official Journal of the European Union, that is, May 17! This means that just today, the EU carbon tariff has gone through all the procedures and officially came into effect!
What is a carbon tax? Let me give you a brief introduction!
CBAM is one of the core parts of the EU's "Fit for 55" emission reduction plan. The plan aims to reduce EU member states' carbon emissions by 55% from 1990 levels by 2030. To achieve this goal, the EU has adopted a series of measures, including expanding the proportion of renewable energy, expanding the EU carbon market, stopping the sale of fuel vehicles, and establishing a carbon border mediation mechanism, a total of 12 new bills.
If it is simply summarized in popular language, it means that the EU charges products with high carbon emissions imported from third countries according to the carbon emissions of imported products.
The most direct purpose of the EU to set up carbon tariffs is to solve the problem of "carbon leakage". This is a problem facing the EU's climate policy efforts. It means that due to stricter environmental regulations, EU companies have shifted to regions with lower production costs, resulting in no reduction in carbon dioxide emissions on a global scale. The EU carbon border tax aims to protect producers within the EU that are subject to strict carbon emission control, increase the tariff costs of relatively weak producers such as external emission reduction targets and control measures, and prevent enterprises within the EU from transferring to countries with lower emission costs, to avoid "carbon leakage".
At the same time, to cooperate with the CBAM mechanism, the reform of the European Union's carbon trading system (EU-ETS) will also be launched simultaneously. According to the draft reform plan, the EU's free carbon allowances will be fully withdrawn in 2032, and the withdrawal of free allowances will further increase the emission costs of producers.
According to the available information, CBAM will initially apply to cement, steel, aluminum, fertilizer, electricity, and hydrogen. The production process of these products is carbon-intensive and the risk of carbon leakage is high, and it will gradually expand to other industries in the later stage. CBAM will start trial operation on October 1, 2023, with a transition period until the end of 2025. The tax will be officially launched on January 1, 2026. Importers will need to declare the number of goods imported to the EU in the previous year and their hidden greenhouse gases every year, and then they will purchase a corresponding number of CBAM certificates. The price of the certificates will be calculated based on the average weekly auction price of EU ETS allowances, expressed in EUR/t CO2 emissions. During 2026-2034, the phase-out of free quotas under the EU ETS will take place in parallel with CBAM.
On the whole, carbon tariffs substantially reduce the competitiveness of external export enterprises and are a new type of trade barrier, which will have many impacts on my country.
First of all, my country is the EU's largest trading partner and the largest source of commodity imports, as well as the largest source of embodied carbon emissions from EU imports. 80% of the carbon emissions of my country's intermediate products exported to the EU come from metals, chemicals, and non-metallic minerals, which belong to the high-leakage risk sectors of the EU carbon market. Once included in the carbon border regulation, it will have a huge impact on exports; A lot of research work has been carried out on its influence. In the case of different data and assumptions (such as the emission scope of imported products, carbon emission intensity, and carbon price of related products), the conclusions will be quite different. It is generally believed that 5-7% of China's total exports to Europe will be affected, and the CBAM sector's exports to Europe will drop by 11-13%; the cost of exports to Europe will increase by about 100-300 million US dollars per year, accounting for the CBAM-covered products' exports to Europe 1.6-4.8%.
But at the same time, we also need to see the positive impact of the EU's "carbon tariff" policy on my country's export industry and the construction of the carbon market. Taking the iron and steel industry as an example, there is a gap of 1 ton between my country's carbon emission level per ton of steel and the EU. To make up for this emission gap, my country's iron and steel enterprises need to purchase CBAM certificates. According to estimates, the CBAM mechanism will have an impact of about 16 billion yuan on my country's steel trade volume, increase tariffs by about 2.6 billion yuan, increase costs by about 650 yuan per ton of steel, and tax burden rate of about 11%. This will undoubtedly increase the export pressure on my country's iron and steel enterprises and promote their transformation to low-carbon development.
On the other hand, my country's carbon market construction is still in its infancy, and we are still exploring ways to reflect the cost of carbon emissions through the carbon market. The current carbon price level cannot fully reflect the pricing level of domestic enterprises, and there are still some non-pricing factors. Therefore, in the process of formulating the "carbon tariff" policy, my country should strengthen communication with the EU, and reasonably consider the manifestation of these cost factors. This will ensure that my country's industries can better cope with the challenges in the face of "carbon tariffs", and at the same time promote the steady development of my country's carbon market construction.
Therefore, for our country, this is both an opportunity and a challenge. Domestic enterprises need to face up to risks, and traditional industries should rely on "quality improvement and carbon reduction" to eliminate impacts. At the same time, my country's clean technology industry may usher in "green opportunities". CBAM is expected to Stimulating the export of new energy industries such as photovoltaics in China, taking into account factors such as Europe's promotion of localized manufacturing of new energy industries, which may drive the increase in demand for Chinese companies to invest in clean energy technologies in Europe.
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