Page 8 - EurOil Week 22 2021

EurOil COMMENTARY EurOil

Put simply, the CBAM would extend the
market prices of the EU’s ETS (generically called
the carbon market) to the rest of the world by
applying to imports a carbon levy that mirrors
the price of carbon in the ETS.
This aims to prevent dirtier and/or cheaper
imports of raw materials from arriving in Europe
as the CBAM charge raises their price to com-
prisable EU levels.
The EU wants to include a wide range of
imports, including cement, steel, aluminium,
refined oil products, paper, glass, chemicals and
fertilisers.
Russia and the US have been quick to voice
their concerns about the CBAM ahead of the
European Commission’s anticipated released of “Separately, there is the challenge of convinc-
the CBAM plans by July 14, when it will publish a ing major trade partners of the appropriateness
formal CBAM proposal and impact assessments. of this approach. We have already had the new
John Kerry has called the CBAM a “last US administration expressing reservations
resort” and has urged the EU to wait until after about CBAM. There should be little doubt that
the COP26 conference in Glasgow in November. China would also be opposed to its introduc-
In trade terms, the CBAM could be seen as a tion,” he said.
trade barrier and be discriminatory by favour-
ing EU emitters over similar companies outside Prices
Europe. A key issue for polluting companies across the
The Commission has insisted that the Green globe, but especially in Eastern Europe, Asia and
Deal will be WTO-compliant, which means even the US, is what sort of levels of carbon price
imported goods cannot be held to higher stand- the CBAM will produce.
ards than domestically produced ones. Recent research from the Potsdam Institute
The biggest exporter of carbon-embedded for Climate Impact Research (PIK) warned that
goods to the EU is Russia, with trade worth that the 55% emissions reduction target and the
nearly €10bn in 2019, according to research from CBAM would push up the EU’s carbon prices to
Deloitte. China is next with €7bn, then Turkey close to €130 per tonne by 2030.
with €6bn. “All things considered, the 55% target will
Crucially, none of these countries has a car- have massive consequences for the power sec-
bon price at present, making them vulnerable tor,” said the PIK’s Sebastian Osorio.
to the CBAM, which would effectively act as a “Under the previous EU climate mitigation
border tax. target – which meant reducing greenhouse
Moscow has already accused the EU of gas emissions by 2030 by merely 40% – it was
instrumentalising the climate agenda for its own expected that the carbon price within the EU
benefit, and has referred to the CBAM plans as ETS would rise to €35 per tonne [of] CO2 until
protectionist. 2030. Yet by adhering to the new target of minus
Russia has made some climate change plans, 55%, carbon prices in the ETS would in fact
though. It has piloted a carbon price in Sakhalin more than triple to roughly €130 per tonne [of]
region. CO2 in 2030.”
And Rusal has unveiled plans to demerge As mentioned, the CBAM price is designed to
its high-carbon aluminium smelters into a new be equivalent to the EU ETS price.
company so that it can focus on the fast-growing By comparison, China’s carbon tax currently
market for green aluminium. Rusal owner EN+ stands at around €1-3 per tonne, way below cur-
has announced it would reduce its greenhouse rent EU ETS levels of €50.
gas (GHG) emissions by at least 35% by 2030 and
reach net zero by 2050. Decision time
While EU companies and ultimately consum-
Trade disputes ers already pay a carbon price, the EU plans to
It seems that the EU’s effort to fight climate extend this price, as part of its comprehensive
change is set to cause a trade dispute Green Deal.
“The challenges in introducing a CBAM The price may be trying to put a social cost
should not be underestimated” said Totis Kot- on emissions, and indeed create an incentive
sonis, international trade law expert at Pinsent for governments, companies and consumers to
Masons. reduce these emissions, but the EU’s neighbours
“First, there is the challenge of ensuring that now face a major rise in their business costs that
the mechanism complies with the EU’s WTO comes at a time when they are also trying to meet
commitments, including the obligation not to the Paris Agreement goals.
discriminate between like products imported The price of carbon is no longer just an ESG
from different countries. Equally, the CBAM issue, but a wider trade and investment issue
cannot be based [for] the legal or de facto dis- that should be at the top of the agenda of deci-
crimination of imports when compared against sion-makers in governments across Eastern
domestic like products.” Europe and in companies exporting to the EU.™

P8 www. NEWSBASE .com Week 22 03•June•2021