The European Union’s Carbon Border Adjustment Mechanism (CBAM), expected to come into effect in 2026, will impose import taxes on products such as steel, cement, and electricity, based on their CO2 emissions during production. These fees aim to curb “carbon leakage,” which is the result of polluting entities shifting production from countries with strict regulations or high carbon prices to countries with less stringent regulations or lower prices.
Import taxes will be imposed on products such as steel, cement, and electricity. Illustrative photo |
However, a statistical model shows that CBAM has the ability to reduce global carbon emissions by less than 0.2% compared to a cap-and-trade mechanism with a carbon price of 100 euros (108 USD) per tonne and no carbon tax. At the same time, these fees could reduce global exports to the EU by about 0.4%, and Asian exports to the EU by about 1.1%, while negatively affecting the output of some manufacturers within the EU, according to the Asia Economic Integration Report (AEIR) 2024 published today, February 26.
ADB’s Chief Economist, Mr. Albert Park, states: “The inherently fragmented nature of sectoral and regional carbon pricing initiatives, including CBAM, can only partially mitigate carbon leakage. To significantly reduce global carbon emissions while ensuring climate efforts are more effective and sustainable, carbon pricing initiatives need to be expanded beyond the EU to other regions, especially Asia.”
Asian subregions with a higher share of carbon-intensive exports to Europe, especially Central and West Asia, will be more negatively affected by the CBAM mechanism and the EU’s cap-and-trade system. The report recommends appropriate incentivizing mechanisms to promote widespread carbon pricing, particularly for developing economies in Asia, given the expected distributional impacts.
The report also recommends decarbonization measures in international trade and the global value chain. Carbon emissions from these sources are increasing faster than other sources and are also increasing faster in Asia compared to other regions. Some of the recommendations include implementing target-driven policies to incentivize the trade of climate-friendly products and services; supporting environmental regulations and standards; facilitating the transfer of green technologies; and supporting governments and international organizations in promoting green investments and infrastructure.
The report calls for global cooperation to establish widely accepted accounting frameworks to effectively monitor emissions in products and services.
Among other key findings, AEIR 2024 shows that despite concerns about global dispersal risks, global value chains in Asia have recovered well after the COVID-19 pandemic. While the regionalization of global value chains has progressed in recent years in Asia, the report does not find clear evidence of “reshoring” attracting attention in Asia or globally.
Duong Ngoc
