On March 15, the carbon border regulation mechanism (CBAM, also known as EU carbon tariff) was preliminarily approved by the EU Council. It is planned to be officially implemented from January 1, 2023, setting a three-year transition period. On the same day, at the economic and financial affairs committee meeting (Ecofin) of the European Council, the finance ministers of the 27 EU countries adopted the carbon tariff proposal of France, the rotating presidency of the European Council. This means that EU Member States support the implementation of carbon tariff policy. As the world’s first proposal to deal with climate change in the form of carbon tariffs, the carbon border regulation mechanism will have a far-reaching impact on Global trade. It is expected that in July this year, the EU carbon tariff will enter the tripartite negotiation stage between the European Commission, the European Council and the European Parliament. If it goes smoothly, the final legal text will be adopted.
The concept of “carbon tariff” has never been implemented on a real large scale since it was put forward in the 1990s. Some scholars believe that the EU carbon tariff can be either a special import tariff used to purchase the EU’s import license or a domestic consumption tax levied on the carbon content of imported products, which is one of the keys to the success of the EU’s green new deal. According to the EU’s carbon tariff requirements, it will levy taxes on steel, cement, aluminum and chemical fertilizers imported from countries and regions with relatively loose carbon emission restrictions. The transition period of this mechanism is from 2023 to 2025. During the transition period, there is no need to pay corresponding fees, but importers need to submit certificates of product import volume, carbon emissions and indirect emissions, and carbon emission related fees paid by products in the country of origin. After the end of the transition period, importers will pay relevant fees for carbon emissions of imported products. At present, the EU has required enterprises to evaluate, calculate and report the carbon footprint cost of products by themselves. What impact will the implementation of EU carbon tariff have? What are the problems facing the implementation of EU carbon tariffs? This paper will briefly analyze this.
We will accelerate the improvement of the carbon market
Studies have shown that under different models and different tax rates, the collection of EU carbon tariffs will reduce China’s total trade with Europe by 10% ~ 20%. According to the prediction of the European Commission, carbon tariffs will bring 4 billion euros to 15 billion euros of “additional income” to the EU every year, and will show an increasing trend year by year in a certain period of time. The EU will focus on tariffs on aluminum, chemical fertilizer, steel and electricity. Some scholars believe that the EU will “spill over” carbon tariffs to other countries through institutional provisions, so as to have a greater impact on China’s trade activities.
In 2021, China’s steel exports to 27 EU countries and the UK totaled 3.184 million tons, a year-on-year increase of 52.4%. According to the price of 50 euros / ton in the carbon market in 2021, the EU will impose a carbon tariff of 159.2 million euros on China’s steel products. This will further reduce the price advantage of China’s steel products exported to the EU. At the same time, it will also promote China’s steel industry to accelerate the pace of decarbonization and accelerate the development of the carbon market. Under the influence of the objective requirements of the international situation and the actual demand of Chinese enterprises to actively respond to the EU carbon border regulation mechanism, the construction pressure of China’s carbon market continues to increase. It is an issue that must be seriously considered to timely promote the iron and steel industry and other industries to be included in the carbon emission trading system. By accelerating the construction and improving the carbon market, reducing the amount of tariffs that Chinese enterprises need to pay for exporting products to the EU market can also avoid double taxation.
Stimulate the growth of green power demand
According to the newly adopted proposal, the EU carbon tariff only recognizes the explicit carbon price, which will greatly stimulate the growth of China’s green power energy demand. At present, it is not known whether the EU recognizes China’s national certified emission reduction (CCER). If the EU carbon market does not recognize CCER, first, it will discourage China’s export-oriented enterprises from purchasing CCER to offset quotas, second, it will cause a shortage of carbon quotas and a rise in carbon prices, and third, export-oriented enterprises will be eager to find low-cost emission reduction schemes that can fill the quota gap. Based on the renewable energy development and consumption policy under China’s “double carbon” strategy, green power consumption has proved to be the best choice for enterprises to deal with EU carbon tariffs. With the continuous growth of consumer demand, this will not only help to improve the consumption capacity of renewable energy, but also stimulate enterprises to invest in renewable energy power generation.
Accelerate the certification of low-carbon and zero carbon products
At present, ArcelorMittal, a European steel enterprise, has launched zero carbon steel certification through xcarbtm plan, ThyssenKrupp has launched blueminttm, a low-carbon emission steel brand, Nucor steel, an American steel enterprise, has proposed zero carbon steel econiqtm, and Schnitzer steel has also proposed GRN steeltm, a bar and wire material. Under the background of accelerating the realization of carbon neutralization in the world, China’s iron and steel enterprises Baowu, Hegang, Anshan Iron and steel, Jianlong, etc. have successively issued carbon neutralization roadmap, kept pace with the world’s advanced enterprises in the research of breakthrough technology solutions, and strive to surpass.
The real implementation still faces many obstacles
There are still many obstacles to the real implementation of EU carbon tariff, and the free carbon quota system will become one of the main obstacles to the legalization of carbon tariff. By the end of 2019, more than half of enterprises in the EU carbon trading system still enjoy free carbon quotas. This will distort competition and is inconsistent with the EU’s plan to achieve carbon neutrality by 2050.
In addition, the EU hopes that by imposing carbon tariffs with similar internal carbon prices on similar imported products, it will strive to be compatible with the relevant rules of the world trade organization, especially Article 1 (most favoured nation treatment) and Article 3 (non discriminatory principle of similar products) of the general agreement on Tariffs and trade (GATT).
The iron and steel industry is the industry with the largest carbon emission in the world industrial economy. At the same time, the iron and steel industry has a long industrial chain and wide influence. The implementation of carbon tariff policy in this industry faces great challenges. The EU’s proposal of “green growth and digital transformation” is essentially to enhance the competitiveness of traditional industries such as steel industry. In 2021, the crude steel output of EU was 152.5 million tons, and that of the whole Europe was 203.7 million tons, with a year-on-year increase of 13.7%, accounting for 10.4% of the total global crude steel output. It can be considered that the EU’s carbon tariff policy is also trying to establish a new trade system, formulate new trade rules around addressing climate change and industrial development, and strive to be incorporated into the world trade organization system to make it beneficial to the EU.
In essence, carbon tariff is a new trade barrier, which aims to protect the fairness of the EU and even the European steel market. There is still a three-year transition period before the EU carbon tariff is really implemented. There is still time for countries and enterprises to formulate countermeasures. The binding force of international rules on carbon emissions will only increase or not decrease. China’s iron and steel industry will actively participate in and gradually master the right to speak is a long-term development plan. For iron and steel enterprises, the most effective strategy is still to take the road of green and low-carbon development, deal with the relationship between development and emission reduction, accelerate the transformation of old and new kinetic energy, vigorously develop new energy, accelerate the development of green technology and improve the competitiveness of the global market.