General

On July 14, local time, in order to complete the emission targets set in the new climate targets and at the same time help local companies compete with foreign rivals that are not bound by climate regulations, the European Union launched the world's first carbon border tax policy.

It is reported that this carbon border tax policy imposes tariffs on carbon-intensive imported products, such as iron, aluminum, cement, fertilizers and electricity. The tax will be implemented in stages starting from 2026.

Two main purposes

The EU's carbon border tax has two main purposes: one is to help the EU meet the emission targets set in the new climate target; the other is to protect local companies from competing with foreign rivals that are not bound by climate regulations.

For example, a steel company headquartered in Luxembourg, in order to reduce carbon emissions as much as possible, try to replace fossil fuels with hydrogen in the furnace, and such improvements will cost at least billions of euros. In this case, compared with foreign companies that do not have strict climate policy constraints, EU local companies are often at a disadvantage in the competition.

How to implement

Under the carbon border tax policy, importers need to purchase the corresponding number of electronic certificates according to the carbon emissions generated by the imported goods. The price of each electronic certificate is not fixed, and is mainly determined by the EU carbon trading market price of the week.

However, if the importer can prove that the imported goods have paid a certain price for carbon emissions during the entire production process, then this part of the cost can be deducted from the final carbon tax.

It is reported that the carbon border tax will be gradually implemented in 2026, and 2023-2025 will be a transitional stage. At this stage, importers need to monitor and report their carbon emissions.

Most analysts believe that with the announcement of the carbon border tax policy, it is expected that the market price of carbon trading will continue to rise until 2030.

What is the impact

The applicable countries of the carbon border tax policy are countries that have not put a price on carbon emissions, and this covers almost most countries in the world.

The countries that are expected to be most affected by the carbon border tax policy include Russia, Turkey, China, the United Kingdom, and Ukraine that export large amounts of fertilizer, steel, iron, and aluminum to the European Union.

The United Nations Trade Development Organization (UNCTAD) issued a warning on July 14 that the EU's carbon border adjustment mechanism may change the trade model, which is beneficial to countries with high resource efficiency and low carbon emissions from industrial production, but exports to developing countries. It may have adverse effects, and at the same time, it has little effect on mitigating climate change.

The UNCTAD report stated that several EU trading partners that export carbon-intensive products are worried that the carbon border tax will drastically cut their exports.

The report shows that if the EU carbon border tax is implemented at a price of US$44 per ton, the export of carbon-intensive industries in developing countries will be reduced by 1.4%, and if it is implemented at a price of US$88 per ton, exports will be reduced by 2.4%. At the same time, the income of developed countries will increase by 2.5 billion U.S. dollars, while the income of developing countries will decrease by 5.9 billion U.S. dollars.