The EU has issued a new Cross-Border Carbon Adjustment Mechanism (CBAM) with a transition period from October 1, 2023 and full effect from January 1, 2026. The UK is conducting consultations on a similar Mechanism from March 30 to June 22, 2023. CBAM will replace the EU Emissions Market Mechanism for the period 2026 – 2035.

According to Mr. Nguyen Canh Cuong - Counselor of the Vietnamese Ambassador to the UK, CBAM is a new EU policy tool that allows additional taxes on imported goods in industries with high emission levels including iron and steel production. , aluminum, fertilizer, cement, electricity and hydrogen. This additional tax is called a carbon tax and is calculated based on the product's emission level during production.

Currently, the British Government is implementing a 5-step roadmap in developing and implementing CBAM such as: Consultation between relevant Government agencies and the National Assembly, businesses, environmental protection organizations, and environmental protection organizations. science and people (from March 30 to June 22, 2023); policy design including scope, carbon prices, regions and sectors of application, and compliance mechanisms; consult and negotiate with trading partners in the WTO to ensure CBAM is consistent with international law; conduct pilot programs to evaluate the effectiveness of CBAM and identify areas for improvement; CBAM will be implemented in stages and closely monitored to ensure it is effective in reducing emissions and protecting UK businesses and industries.

Mr. Nguyen Canh Cuong - information, the British Government calculates carbon tax based on the carbon price floor (CPF). CPF is a tax on the use of gas and coal in electricity production by imposing a minimum price on each ton of CO2 emitted from power plants. This minimum price has been set at £16/tonne of CO2 emissions since 2013 and has gradually increased over the years according to inflation. CPF in 2020 is 18.8 £/ton, in 2022 it is 22 £/ton and is forecast to increase to 39 £/ton by 2030.

However, the average price of carbon emissions in the UK in 2022 has reached £69.15/ton. Actual prices are determined on the basis of bi-weekly auctions organized by ICE Futures Europe. This auction mechanism starts operating from May 19, 2021 in the UK. The actual price is not allowed to be lower than the minimum price set annually by the Government.

It can be said that exports of iron, steel, aluminum... benefit a lot from the incentives provided by the Vietnam - UK Free Trade Agreement (UKVFTA). As a result, in recent years the export of iron and steel products of all kinds has grown quite high, even up to 3 digits. Or with aluminum products, according to a representative of the Vietnam Aluminum Association, currently businesses in the Vietnam Aluminum Association have exported aluminum billets and aluminum products for construction to export to the UK. This is a quite difficult market. However, it must be recognized that export businesses benefit a lot from the UKVFTA Agreement.

With the opportunities that the UKVFTA Agreement brings, however, in the new context, when the EU officially pilots a new carbon emissions mechanism in October and the UK is moving towards a carbon tax roadmap, this is also a challenge. For businesses exporting steel, aluminum...

Mr. Nguyen Canh Cuong said that although CBAM will not have a significant impact on trade in the period from now to January 1, 2026, however, during this transition period, industries using with a lot of energy (electricity, gas) and high levels of greenhouse gas emissions, we must convert technology to avoid encountering new cross-border carbon tax barriers in the future.

In the long term, the production and export of iron, steel, aluminum, cement and fertilizer products in developing countries, including Vietnam, will face difficulties when competitive advantage comes from cheaper electricity prices and higher costs. Lower environmental protection costs will be reduced because of the new cross-border carbon tax costs.

Besides, the effectiveness of FTAs will more or less decline for export products of the above industries. The trend of industrial transition from developed countries to developing countries may slow down after 2026.

Some industries in developed countries have a chance to recover thanks to new technology and protection through government subsidies and carbon taxes on imports. Low emission industries will have growth opportunities while high emission industries will decline. Products of these industries will have corresponding changes. Greener, cleaner energy will gradually replace fossil fuels and change the electricity production and transportation industries.

Along with other climate policies, CBAM will limit the growth of the coal and oil mining industries.

Faced with the above policies, Mr. Nguyen Canh Cuong recommended that businesses in industries affected by CBAM need to accelerate energy conversion and gradually apply decarbonization technology in production;

The Department of Industry and the Department of Import-Export study the impact of CBAM on the Industrial Development Strategy and National Export Strategy.

In addition, the Trade Promotion Department coordinates with Departments of Industry and Trade to disseminate CBAM to businesses and support businesses in developing plans to convert non-carbonization technology to adapt to changes in export markets. password.

Minh Toan