To deal with the EU “carbon tariff” must take precautions

The EU “carbon tariff” plan has been formally finalized recently. Compared with the amendments to the draft carbon border regulation mechanism (CBAM) adopted by the European Parliament on June 22 last year, the transition period will start in October 2023 and be formally implemented in 2026, one year ahead of schedule.

The EU “carbon tariff” is to impose additional tariffs on the carbon price difference of carbon emissions of goods exported to the EU. The “carbon tariff” applies to all countries’ products exported to Europe, and only exempt non-EU countries that have joined the EU carbon market or countries that have established a carbon market link with the EU. The EU “carbon tariff” transition period covers the fields of steel, cement, aluminum, fertilizer and electricity, and extends to hydrogen energy, indirect emissions under specific conditions, specific precursors and certain downstream products. After the end of the transition period, the scope of application may be further expanded, such as the organic chemicals and plastics mentioned in the amendment last year, which will ultimately protect all relevant products in the EU carbon market.

In 2020, China surpassed the United States as the largest trading partner of the EU for the first time, so the impact of “carbon tariffs” on China is obvious. “Carbon tariff” involves steel, aluminum, fertilizer, cement, hydrogen and electricity. China’s steel and aluminum industries are mainly affected by the “carbon tariff” in the short term. In general, the “carbon tariff” has a limited impact on China in the short term, but in the long term, it will have a comprehensive impact on China, mainly reflected in the following three aspects.

First, the “carbon tariff” will increase the cost of China’s exports to the EU. For example, for steel and aluminum involved in the short term, China is dominated by long-process steelmaking (blast furnace), while Europe and America are dominated by short-process steelmaking (electric furnace). The energy consumption and carbon emission level of short-process steelmaking is far lower than that of long-process steelmaking. Based on the current China-EU carbon price, the cost of steel exported from China to the EU may rise by more than 20%. The “carbon tariff” of the EU will force relevant domestic industries to accelerate carbon reduction and low-carbon transformation and upgrading of relevant enterprises.

Second, the “carbon tariff” will accelerate the construction of China’s carbon trading market. At present, although the national carbon trading market as a policy market has achieved initial results, and enterprises have formed a low carbon awareness of “emission has costs, emission reduction has benefits”, due to many problems such as less coverage of industries and single trading products, the national carbon trading market has not yet produced a reasonable carbon emission pricing mechanism. The launch of the EU “carbon tariff” will promote China to incorporate more high-carbon emission industries into the carbon trading market as soon as possible, improve the carbon price discovery and pricing mechanism, and promote the construction of the national carbon market.

Third, in the long run, the organic chemicals and plastics included in the “carbon tariff” amendment in June last year are likely to be included in the future with the expansion of the scope of the “carbon tariff” in the next stage. If the EU imposes a “carbon tariff” on such products, it will have a significant impact on China’s chemical industry, push up the export cost of China’s chemical industry, intensify the market competition of basic bulk chemical products, and make the export trade of the chemical industry face greater challenges.

In general, with the implementation of the EU “carbon tariff” policy, the petroleum and chemical industry enterprises with high carbon emissions will face greater challenges and must plan as soon as possible. On the one hand, we should actively respond. At the same time, the impact of “carbon tariff” on the industry was analyzed and countermeasures were proposed. On the other hand, we should strengthen the capacity building of enterprises’ carbon emission management. First of all, we should do a good job in the carbon footprint analysis of the whole life cycle of the product, master the carbon fixation rate of the product, understand the carbon emission status in the production process of the product, and explore the certification of green and low-carbon chemical products. At the same time, key petroleum and chemical enterprises should carry out in-depth investigation and research on this policy and its impact to determine future response strategies. In addition, enterprises should also increase investment and develop advanced green and low-carbon technologies to improve the green quality and low-carbon competitiveness of products.

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