The European Union should reconsider ways to reduce the impact of the CBAM on Ukraine, one of which could be a temporary exemption from this mechanism.
This recommendation was made by Center for European Reform (CER) analysts Elisabetta Cornago and Aslak Berg in their study “Lessons from the CBAM Transition: Early Impact on Trade and Climate Efforts”.
They suggested that the European Commission, as it prepares for the first review and possible extension of the CBAM, should support its developing trading partners in decarbonizing their industries. The authors of the report say this can be done through policy advice, technology transfer, and financial support funded by CBAM revenues.
“If the EU is serious about its role as a climate leader, it must provide tangible support to developing countries in decarbonizing their industries – above all if it wants to keep climate diplomacy afloat,” CER said.
They also insist that the EU should:
1. Use CBAM revenues to finance technology transfer policies and support decarbonisation for LDCs and developing countries.
2. Work with our trading partners to support countries that want to introduce carbon quota systems by helping them design and implement such systems.
“Countries that have already implemented carbon pricing, such as the UK, should enter into bilateral agreements with the EU to opt out of CBAM and avoid the red tape associated with it. This may require these countries to negotiate with the EU on linking their emissions trading systems to the EU's ETS," the researchers say.
3. Make specific support for industrial decarbonization a key part of your climate diplomacy and foreign investment strategy – from financial support to technology transfer.
"The EU cannot simply focus on the policy of clean industry at home and not lead the industrial revolution abroad," the authors of the report are confident.
What are the trade and climate impacts of CBAM now and what are the projections
Analysts say that the obligations and requirements for accounting and reporting of carbon emissions under the cross-border carbon adjustment mechanism from October 2023 are administratively burdensome for importers and producers. But a year after their introduction, CBAM has no noticeable impact on trade flows. Manufacturers cover these administrative costs and continue to trade with the EU. At the same time, analysts note that CBAM has already encouraged other countries to implement their own carbon pricing systems or adjustment mechanisms.
According to the authors of the report, significant changes will take place from 2026, as importers of CBAM goods will have to pay a carbon price aligned with the EU ETS price.
"This will push foreign manufacturers to focus on limited exports of "cleaner", low-carbon products to the EU, redirecting more carbon-intensive products to other countries," they say.
Analysts predict that emissions will not decrease immediately, and global markets for CBAM goods may split between low-carbon and high-carbon goods – at least until the former become more globally competitive. But in the long term, there will be more momentum to decarbonise the production of CBAM goods, leading to cleaner exports to the EU and overall lower industrial emissions.
Who will be most affected by the cross-border carbon adjustment mechanism
Analysts at the Center for European Reform predict that CBAM will be most affected by those countries that export a large volume of carbon-intensive goods to the EU and do not apply a domestic carbon price. Many of them are large economies, mostly with high or middle income: China, Russia, Turkey, the United Kingdom, and the United States.
“These countries have the ability to adapt to CBAM by introducing or strengthening their own carbon pricing system (like China, Turkey, and the UK), subsidizing industrial decarbonization (like the US did with the Inflation Reduction Act), or simply absorbing the losses (like in the case of Russia),” the researchers said.
They emphasized that there are large economies that will be affected by the CBAM and may need additional EU support to adapt their industries to a zero-balance future. Among these countries, the researchers named India, Vietnam, Brazil, and Ukraine.
Earlier, EcoPolitics interviewed Stanislav Zinchenko, Chairman of the EBA Committee on Industrial Ecology and Sustainable Development, about the impact of CBAM on climate change, the readiness of Ukrainian and European producers to fully implement this mechanism, and possible ways to prevent export losses.
