The EU carbon tariffs came into effect on October 1

According to the World Bank research report, if the "carbon tariff" is fully implemented, Chinese manufacturing may face an average tariff of 26% in the international market, and exports may decline by 21%. Recently, at the regular press conference of the Ministry of Commerce, some media mentioned that the European Commission announced the implementation rules of the EU Carbon Border Adjustment Mechanism (CBAM) transition period will officially take effect from October 1 this year. It lasts until the end of 2025. The rules set out the obligations involved for importers of goods under the EU's Carbon Border Adjustment Scheme and the transitional method for calculating the amount of greenhouse gases released during the production of imported goods. The EU will become the first economy in the world to impose a "carbon tariff".

A carbon tariff is a border measure that focuses on the carbon content of a product. The scientific name of carbon tariff is also known as the carbon border adjustment mechanism, the English abbreviation CBAM, the mechanism refers to the production of some goods will release carbon dioxide and other greenhouse gases, these goods into the EU border, need to pay an additional payment to the EU, the amount of greenhouse gases released during the production of goods related to the amount of greenhouse gases.

In December 2022, the European Parliament and the European Council reached a provisional agreement to determine that the EU carbon border adjustment mechanism will start trial operation on October 1, 2023, with a transition period until December 31, 2025, with formal introduction on January 1, 2026, and full implementation by 2034. The EU will become the first economy in the world to impose a "carbon tariff". This also means that high carbon emissions at any point in the supply chain will lead to more carbon control costs for exported products.

Notes for CBAM:

① Carbon emissions of heavy industry products will be included in the calculation

From October 1, the EU Carbon Border Adjustment Mechanism (CBAM) will be put into trial operation, with a transition period until the end of 2025 and gradual full implementation from 2027 to 2034. Under the CBAM, the EU will impose an additional carbon border adjustment fee, known as a "carbon tariff," on certain products imported from abroad.

After the adjustment of the mechanism, it now covers a wide range of industries and categories. On the basis of the original five categories of steel, aluminum, cement, fertilizer and electricity, chemicals (organic chemicals, hydrogen and ammonia), plastics and their products are newly included. Basically covers all the current basic heavy industry categories, and plans to continue to expand the category after the formal implementation.

Take China, a major global economy. In 2022, among Jiangsu's exports to the EU, CBAM-related products accounted for about 3.8% of Jiangsu's total exports to the EU." Among them, steel exports accounted for the highest proportion, about 70%, and enterprises with annual exports of more than 1 million US dollars accounted for about 10%. A local special steel enterprise that mainly exports to the EU exported 155,000 tons of steel last year, accounting for about 20% of its total exports, and now all of this steel is in the CBAM range.

② Indirect emissions will be included in the calculation

In addition to imposing carbon tariffs on direct emissions generated by production, indirect parts involved in production such as electricity and raw materials purchased during production will also be included in the collection list. This means that the above enterprises will also be audited from the raw material end to calculate indirect emissions.

It is necessary to mention the concept of carbon footprint, which refers to the greenhouse gas emissions caused by enterprises, activities, products or individuals through transportation, food production and consumption and various production processes, mainly through: transportation, food production and consumption, energy use and various production processes.

The trial operation of this mechanism, including power and chemical raw materials, will undoubtedly make many production enterprises that rely on external power and raw material supply begin to pay attention to carbon management in the production process.

③ The purchase of CBAM certificates and the cancellation of free quotas

In addition to carbon footprint calculation and carbon management, customs clearance certificates will also begin to usher in a wave of processing. Under current CBAM regulations, importers are required to report carbon emissions data during the transition period and do not need to purchase CBAM certificates.

However, from 2026, if the carbon price of the production place is lower than that of the EU market, a CBAM certificate will need to be purchased to make up the difference. The price of the certificate is linked to the auction price of the EU carbon market quota, and the price will fluctuate (the higher the carbon price, the greater the emission reduction). The current free carbon emission allowances for sectors covered by the CBAM will also be abolished over a nine-year period from 2026 to 2034. Here, we can give an example of how big the impact is.

Taking steel enterprises as an example, if the average carbon emission per ton of steel produced locally is 2.0 tons, and the carbon price in the EU carbon market is 68 euros/ton, the cost per ton of steel exported to the EU will increase by 136 euros. Products exported to the EU will face an increasing "carbon tax" year by year, and relevant enterprises need to enter the carbon market trading as soon as possible to avoid risk stacking.

④ CBAM certification should pay attention to meet their own

Affected by CBAM, some enterprises are very anxious and blindly carry out some carbon-related work, only to find that it is not much help to deal with CBAM.

For example, during the transition period, the carbon emission accounting of cement, electricity and fertilizer industries includes direct emissions (i.e. greenhouse gas emissions from fossil energy combustion and industrial production) and indirect emissions (i.e. greenhouse gas emissions from purchased electricity and heat); The carbon emissions of the steel, aluminum and hydrogen industries are only calculated as direct emissions. Therefore, it is necessary to clarify the certification needs of their own industry and reduce unnecessary expenditures.