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In the context of globalization and the significant transformation in environmental policies, the European Union (EU) has implemented the Carbon Border Adjustment Mechanism (CBAM) as part of its plan to achieve carbon neutrality by 2050. CBAM is not just a tax adjustment tool but also a measure to promote the development of a green and sustainable industry globally.

What is CBAM?

The Carbon Border Adjustment Mechanism (CBAM) is a carbon tax policy applied to imported goods into the EU based on the carbon emissions generated during the production process in the exporting country. The goal of CBAM is to prevent “carbon leakage” – the phenomenon where businesses move production to countries with lower environmental standards, negatively affecting global climate change mitigation efforts.

How CBAM Works

Importers of goods into the EU must register with domestic regulatory authorities and purchase CBAM certificates. The price of these certificates is adjusted based on the emission allowance prices in the EU Emissions Trading System (EU ETS). Importers declare the emissions of imported goods and submit the corresponding number of certificates annually. If importers can prove that carbon tax has been paid in the exporting country, they may deduct the corresponding emissions.

Scope and Implementation Timeline of CBAM

CBAM currently applies to products such as cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen. This policy has a specific implementation timeline:

– Transition Phase (01/10/2023 – 31/12/2025): Importers must report greenhouse gas emissions quarterly.

– Operational Phase (01/01/2026 – 31/12/2034): Importers must purchase and submit CBAM certificates corresponding to their emissions.

– Full Operational Phase (from 01/01/2034): Factories and businesses will no longer receive free CO2 emission allowances.

Impact on Vietnamese Exports

CBAM directly impacts Vietnam’s major industries, such as iron and steel, cement, fertilizers, and aluminum. Although these are not Vietnam’s strong export sectors to the EU, the application of CBAM will increase product costs and reduce competitiveness in the EU market.

Experts predict that Vietnam’s steel industry may see a 4% reduction in export value, with production decreasing by 0.8%. The aluminum industry may also experience over a 4% decrease in export value and a 0.4% drop in production. The impact on the cement and fertilizer sectors is expected to be negligible.

Recommended Solutions

To respond to CBAM, Vietnam should:

1. Accept and adapt: Businesses should understand CBAM regulations and prepare detailed carbon emission reports.
2. Improve technology: Invest in cleaner technology to reduce carbon emissions during production.
3. Enhance international cooperation: Collaborate with EU partners to better understand CBAM and support measures for businesses.

CBAM presents significant challenges but also opportunities for Vietnamese businesses to innovate and develop sustainably. By staying informed, preparing thoroughly, and implementing emission reduction measures, businesses can comply with EU regulations and enhance their competitiveness in the international market.