On December 13, 12, the European Union (EU) announced that it would implement the Carbon Border Adjustment Mechanism (CBAM). Accordingly, all goods exported to this market will be taxed on carbon based on the intensity of greenhouse gas emissions in the production process in the host country.
CBAM aims to address carbon leakage as companies move production to non-EU countries with less stringent environmental regulations to avoid paying higher costs for their carbon footprint, thereby gaining a competitive advantage.
Similar to the European Union Emissions Trading System (EU ETS), this EU mechanism also requires importers to purchase carbon caps to cover emissions associated with the production of imported goods.
Local impact
With the ultimate goal of reducing greenhouse gas emissions, CBAM is seen as an opportunity for Vietnam to achieve its goal of bringing net emissions to zero. However, the application of this mechanism can bring many challenges for Vietnam.
In the early years, only the most carbon-intensive products were subject to the CBAM scheme, including cement, steel, aluminum, fertilizer, hydrogen and electricity. These products account for 94% of industrial emissions in the EU.
Mr. Ayumi Konishi, former country director of the Asian Development Bank in Vietnam, chaired the dialogue.
However, in the long run, if CBAM expands to other industrial sectors to track the “carbon footprint” of all manufacturing activities while Vietnam's trading partners adopt similar mechanisms, this will pose a significant threat to the country's export industries.
These are information shared at the 20th dialogue session of the Vietnam Institute of Industry and Trade Strategy and Policy (VIOIT) under the Ministry of Industry and Trade with the theme "How can Vietnam make the best use of the CBAM mechanism?".
At the dialogue, a representative of the Energy Transition Partnership (ETP) shared a study showing that iron and steel is the industry that will be hardest hit by CBAM, followed by aluminum, fertilizer and cement, by value exported to the EU.
If Vietnam does not act in time, CBAM could cause Vietnam's total exports to the EU to decrease by 3-5%, thus affecting 1% of the country's GDP.
Although the impact on Vietnam's economy is generally insignificant, it can have a heavy impact on businesses. For example, this tax can account for up to 20% of the cost of iron and steel products exported to the EU when CBAM comes into effect, the representative said.
The consequence of this problem is the competitiveness as well as export output of Vietnam, as well as heavy losses for export enterprises.
Roadmap to reduce carbon
The impact is like that, but the ETP survey shows that very few Vietnamese organizations or businesses have a deep understanding of CBAM. Therefore, ETP recommends, Vietnam needs to do better in disseminating knowledge to businesses. Faced with this situation, the representative of VIOIT made some recommendations to minimize the impacts of CBAM.
Firstly, the Government of Vietnam needs to study the impacts of CBAM on the economy in general as well as on producers and consumers in particular, thereby proposing methods to minimize the impacts of this mechanism, and at the same time developing a plan to reduce CO2 emissions for each industry and product.
Second, develop a domestic carbon market and develop a carbon tax policy in Vietnam, evaluate the feasibility of this policy, and then determine a roadmap to apply this tax policy in Vietnam.
Cement, iron and steel, aluminum, fertilizers, hydrogen and electricity account for 94% of industrial emissions in the EU. Photo: DW
Third, simplify the procedure for receiving and reporting emissions data, and encourage companies to apply strategies and action plans to "respond" to CBAM.
Fourth, instruct businesses on carbon emission certificates, how to report carbon data to relevant authorities, how to conduct research and apply carbon pricing tools, and apply the European ETS system to the production process.
It is expected that 27 EU member states will start piloting CBAM from October 10. During the transition period from October 2023, 1 to the end of 10, importers will have to report emissions in imported goods according to CBAM regulations, but not yet pay a fee.
Once the system is fully operational in 2026, EU importers will have to declare annually the number of goods and emissions of their total imports into the EU in the previous year and submit the corresponding number of CBAM certificates..
Nguyen Tuyet
