The EU mechanism to reduce carbon emissions related to imports could cause issues for developing countries, experts warn.
The carbon border adjustment mechanism (CBAM), which the EU plans to implement from 2026, will extend existing carbon pricing for domestic industries to imported materials such as iron, steel and cement, with prices increasing annually until 2034.
Under the proposal, EU companies will have to purchase certificates matching the carbon price that would have been paid if the imported goods had been produced in the bloc. If a producer can prove that it has already paid a price for the carbon related to the manufacturing of the goods in a third country, the corresponding cost will be deducted for the EU company importing them.
The EU believes the CBAM will help it to meet its emissions reduction targets and combat carbon leakage. However, experts warn that it could also create problems for developing countries, for example, by shifting the burden of emissions pricing or through the loss of export revenues.
Incentivising decarbonisation
While some observers believe that CBAMs could disadvantage some emerging markets, the threat they pose may also serve as an incentive to accelerate countries’ climate transitions.
Victory Hill Capital Partners CEO Anthony Catachanas maintains, however, that the EU’s CBAM “will put a strain on global trade at a time when the EU depends on trade with many emerging markets for primary resources and energy”.
“Generally, it is hard to export a European perspective to other markets – particularly emerging markets, where in many instances the immediate prerogatives will not be to ensure alignment with CBAM but possibly resolve more fundamental social and economic issues first,” Catachanas tells Sustainable Views.”
“As a result, while the initiative does have merits, it reaches too far into affecting European-sourced foreign direct investments into emerging markets. It also imposes what will no doubt be perceived by most non-European exporters into the single market as a very large barrier to entry,” he says.
Energy Access
Opening-up energy access to cater for increasing demand and population growth