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With the EU unveiling its carbon border adjustment tax implementation plan, on carbon border tax is inching closer and closer, carbon tariffs have been controversial since they were proposed. However, a study by environmental groups Sandbag and E3G shows that the EU's carbon tariff may not cost the levied target too much.
The European Commission officially announced its proposed carbon border tariff policy in July and expects to complete the legislation in 2022, with a "transition period" starting in 2023 and implementation in 2026. The bill mainly targets energy and energy-intensive enterprises, involving industries such as steel, cement, fertilizer and aluminum. According to the EU plan, by 2030, carbon emissions in the EU should be reduced by 55% from 1990 levels.
The study points out that the impact of the Carbon Border Adjustment Mechanism (CBAM) on EU trade importing countries will be very small, and after the tariffs are raised, these countries will recover most of the costs through price increases, which will eventually be borne by EU consumers.
According to the report, the U.S. will be less affected by CBAM and will face a net cost of about 10 million euros ($11.829 million) by 2026, increasing to 25 million euros ($29.572 million) in 2035. Russia was previously considered one of the countries hit hard by CBAM, although Sandbag's report predicts that by 2035, Russia will face a net cost of 600 million euros ($709.7 million), mainly from steel exports to the EU.
It is worth mentioning that the Boston Consulting Group previously released a forecast that Russia may have to pay a related carbon tax of $1.8-3.4 billion in 2026 and $3.5-6.4 billion by 2030, based on the average size of Russian exports to the EU in 2019-2020 and combined with the expected increase in СО2 prices, if some of the allowances provided for free by the carbon emissions trading system are not taken into account. If processed oil and petrochemicals are included in the CBAM, Russia may have to pay a carbon tax of $2.9-6.4 billion by 2026 and $5.5-11.7 billion by 2030.
Although the EU hopes to curb greenhouse gas emissions through CBAM, some studies point out that CBAM is unlikely to make much of a difference, with German think tank Bertelsmann Stiftung estimating that CMAM would only reduce total carbon emissions by an additional 0.2 percent. Therefore, some analysts believe that the EU's implementation of CBAM is more of a threatening tool to try to force other countries to look to Europe in terms of curbing climate change.
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