Carbon Border Adjustment Mechanism (CBAM) is one of European Green Deal implementation actions (Climate Sector), is mentioned in “Fit for 55” Package dated 14^th July 2021, in which goods imported to the EU shall have to pay additional fees (called carbon tax) depending on levels of greenhouse gas emissions in manufacturing process at export countries.

On 16^th May 2023, the EU took the first step of implementing CBAM by adopting Regulation 2023/96 of setting up the Carbon Border Adjustment Mechanism (CBAM) – CBAM’s early stage. Under this Regulation, early stage of CBAM is structured as below:

• Applicable scope

In the early stage, CBAM is applicable to 06 highest-polluting goods, including: Iron and Steel, Cement, Fertilizer, Aluminum, Electricity and Hydrogen (total gas emissions of these sectors account for up to 94% of EU industrial gas emission).

• Application roadmap

CBAM’s early stage is designed in 03 following steps:

- Transitional phase (from 1/10/2023 to 31/12/2025):

The EU’s importers of these 06 groups will have to report their emissions. More specifically, from 1^st October 2023 to 31^st December 2024, the reporting will be done in 03 option choices, from 01^st Jan 2025, only EU’s method will be applied. However, during this whole transitional period, importers shall not have to pay any kinds of fees.

- Official phase (from 1/1/2026 to 31/12/2033):

Coupled with declarations obligations, EU importers will have to present CBAM certificates corresponding to embedded emissions of imports which exceed the allowed quotas (means that they have to purchase CBAM certificates for each ton of CO2 equivalent embedded in imported goods into EU that exceeds emissions allowances as per EU’s specific regulations).

Also in this stage, the EU shall revise toward the gradual reduction of free emission allowances to be compatible to EU Emission Trading System (ETS).

- Full application phase (from 1/1/2034 onward):

Since 2034, there will be no free emission allowances, companies shall have to purchase and present CBAM certificates for net carbon emission embedded in the products.

After adoption of Regulation 2023/956 of CBAM’s early stage, the EU introduced some steps for more specific guidance of CBAM, including:

- Adoption of rules governing the implementation of CBAM during its transitional phase (on 17/08/2023), comprising detailed guidance on (i) methods of reporting and providing information by importers (ii) calculation methods of integrated emissions released during goods production.

- Drafting some guidance for implementing CBAM in the official phase (specific calculation methods for applying trading mechanisms and CBAM certificates’ price).

After implementation of CBAM’s early stage, the EU is expected to have an assessment of implementing outcome for its consideration of extending CBAM’s applicable scope for the next phase (from 2030) to some other high risk polluting products (30 listed products, including textile), or to all products.

The EU is the world’s first trade area to levy carbon tax on imported goods. The EU is also the area importing many 06 relevant products. As such, CBAM expectedly shall have substantial impacts on production, export of these 06 products in many export countries. More importantly, if the EU decides to extend CBAM’s scope to other imported goods after 2030, especially to all other imported goods, carbon emission will be an important issue affecting the whole world’s production, export of goods to the EU. In practice, this is also CBAM core objective to prevent “leakage” of greenhouse gas emission from the EU to other countries (EU’s manufacturers shift their production to other countries to avoid green obligations applied to the production in the EU) and boost global green product

Expected impacts of CBAM on Vietnam’s exports With the requirement of declaring emissions embedded in goods production process and paying fees corresponding to net carbon emissions, after full application with a wide scope, CBAM shall be a great challenge to Vietnamese exporters when exporting to the EU market. In the first stage of CBAM, out of 06 applicable goods groups, Vietnam only exports 04 types of goods (aluminum, iron and steel, cement, and fertilizer) to the EU market, of which sectors with the biggest turnover are steel and aluminum. According to ITC Trademap (2022), the turnover of these 06 groups only accounts for nearly 2% of Vietnam’s total exports to the EU, however, Vietnam’s export turnover of iron, steel and aluminum to the EU accounts for up to 23-26% of total Vietnam’s exports of these products to the world (2021). Therefore, CBAM’s first stage has not been considerably affecting Vietnam’s exports in general, however, it has strong impacts on exports of related industries (especially steel). For CBAM, manufacturers exporting related products need to (i) control embedded emissions in the whole production process; (ii) make emission reports as per regulations; and (iii) possess measures to minimize carbon content in each phase of production process not to exceed the EU’s standard. CBAM is only applicable to 6 groups of goods, however, in the future, CBAM is likely to apply to many other products that Vietnam is exporting to this area. Moreover, some markets (like the UK, Canada, etc.) may also adopt CBAM in the coming time. As such, for better preparation for this future, from now Vietnam’s businesses need to closely monitor and have transition plans, improve production procedures, reduce carbon emissions to minimize impacts from this mechanism. Source: Summary of VCCI Research Group

 

Source: Report "EU Green Deal and Vietnam's Exports - The case of the agricultural, food and textile industries" – Center for WTO and International Trade

• Introduction of EU Green Deal
• Basic policy directions of EU Green Deal
• Implementation of the EU Green Deal for the period 2020-2023
• Typical policies of EU Green Deal
• EU Green Deal’s policies in Climate sector