On July 14, the European Commission adopted a long-standing proposal for a Carbon Border Adjustment Mechanism (CBAM), a de facto tax on imported products that do not comply with the EU’s own rules on carbon. carbon emissions.
As Brussels rushes into its climate action, it fears that European companies will relocate their carbon-intensive production abroad to take advantage of lax environmental standards in some countries. The bloc is also concerned that industries abroad are adapting less slowly than the EU to more environmentally friendly energy use.
But foreign governments have accused the EU of protectionism with the program, which is set to begin in 2023.
It is a “unilateral measure to extend the issue of climate change to the commercial sector.” She violates [World Trade Organization] principles, “said Liu Youbin, spokesperson for the Chinese Ministry of Ecology and Environment, at a press briefing on July 26.
Different views of Asia
Perceptions are far from homogeneous across Asia, said Christian Hübner of the German Konrad Adenauer Foundation (KAS), which this year published an opinion poll of experts from eight Asian countries, including Indonesia. , Singapore and Thailand.
Singapore does not oppose CBAM “if it is fair and conforms to international rules and agreements,” Hübner said, based on his previous research, but Indonesian stakeholders are heavily influenced by current trade issues. palm oil.
Malaysia and Indonesia have accused the EU of protectionism with its plan to phase out palm oil imports, which Brussels says is for environmental reasons. The two Southeast Asian states, the world’s two largest palm oil producers, have pledged to tackle the problem at the World Trade Organization (WTO).
“Those who have to make extra payments for carbon certificates to export their goods to the EU will likely oppose CBAM,” Hübner stressed.
ASEAN’s concerns about CBAM
Concerns have been expressed that potential additional levies on exports to the EU from the 10-member Association of Southeast Asian Nations (ASEAN) bloc would lead to less trade if the cost of imported goods became uncompetitive.
Alicia García-Herrero, senior member of the European think tank Bruegel, said that in the short term there would be only a limited impact on trade.
As part of the pilot phase currently scheduled between 2023 and 2025, the CBAM will only apply to imports of iron, steel, aluminum, cement, fertilizers and electricity. None of these sectors is essential for EU-ASEAN trade.
In a report from the United Nations Conference on Trade and Development released in July 2019, Malaysia was the only Southeast Asian country ranked among the top 20 exporters of these products to the EU.
Nonetheless, they represented less than $ 1 billion (840 million euros) of Malaysia’s $ 23 billion exports to the EU that year.
In accordance with the EU plan, direct debits will not be collected under the CBAM until 2026. During the trial period between 2023 and 2026, European importers will only have to collect data and information.
What is CBAM and what is its purpose?
The CBAM system will create a tax, called “carbon certificates”, paid by European importers of goods from outside the bloc.
“EU importers will buy carbon certificates corresponding to the price of carbon that would have been paid if the goods had been produced in accordance with EU carbon pricing rules,” the Commission said in a recent statement.
Currently in the EU, producers must pay similar taxes if they emit more carbon dioxide or other greenhouse gases than what is allowed by law.
However, CBAM will require much more from importers and exporters to collect documents, especially in countries where such carbon emissions data are more difficult to collect.
This is the reason why payments will not start until 2026.
Through this system, non-EU countries will also be encouraged to develop their own carbon pricing mechanisms.
According to a press release from the European Commission, the CBAM “also aims to encourage industry outside the EU and our international partners to take measures in the same direction”.
Under the proposed scheme, European producers could avoid paying the tax if the non-EU producer demonstrates that it has already paid a comparable price for carbon in the country where it is based.
But analysts who spoke to DW warned that it is by no means certain that the EU’s actions will lead to positive changes in the way Southeast Asian governments engage in politics. climate, especially as countries like Vietnam and Cambodia have seen significant investments in coal power. plants in recent years.
Bureaucratic problems are likely to be more acute for less developed states in Southeast Asia and in countries that have yet to introduce their own carbon pricing mechanisms, such as Indonesia.
Even in a country like Singapore – which analysts believe can easily adapt to the EU’s system – a carbon pricing law requires factories to pay a tax if they emit carbon dioxide above a certain threshold, was only introduced in January 2019.
And the city-state still does not have its own emissions trading system, which allows companies to trade emission certificates.
Another potentially contentious issue, Hübner said, concerns how the EU spends the revenue generated by the CBAM mechanism – whether this money will be spent by Brussels on climate protection in the countries from which it collects the levies or ira- it simply in the coffers of the EU. .
Brussels faces a difficult task of explaining a rather complicated system to foreign governments who may question the motives of the EU. Fortunately, he has almost five years to do so before the system goes live.