The UN trade and development agency, UNCTAD, has warned that although a new European Union (EU) climate initiative could change global trade patterns to favour countries where production is relatively carbon-efficient, its value in mitigating climate change will likely be limited.
The Carbon Border Adjustment Mechanism (CBAM) comes into force in 2023 as part of new measures to cut carbon dioxide (CO2) emissions, including taxes on imports such as oil, coal and gas.
A report was published examining the potential implications for countries both within and outside the regional bloc.
“Climate and environmental considerations are at the forefront of policy concerns, and trade cannot be the exception,” Isabelle Durant, the acting secretary-general of UNCTAD, said. “CBAM is one of these options, but its impact on developing countries also needs to be considered,”
The CBAM will help reduce carbon leakage, a term that refers to transferring production to jurisdictions with looser constraints on emissions, the report confirmed. However, its value in mitigating climate change is limited, as the mechanism would cut only 0.1 per cent of global CO2 emissions.
“While the mechanism seeks to avoid the leakage of production and CO2 emissions to the EU’s trading partners with less stringent emissions targets, it is so far unclear how it can support decarbonisation in developing countries,” Durant continued. “Reducing these emissions effectively will require more efficient production and transport processes.”
The report also addressed concerns expressed by trade partners who believed that CBAM would substantially curtail exports in carbon-intensive sectors such as cement, steel and aluminium.
Exports by developing countries would be reduced by 1.4 per cent if the plan is implemented with a tax of 44 dollars per tonne of CO2 emissions, and by 2.4 per cent at 88 dollars per tonne.
Effects would vary significantly by country, depending on their export structure and carbon production intensity.
At the 44 dollars per tonne price, developed countries would see their incomes rise by 1.5 billion dollars, while income in developing countries would fall by 5.9 billion dollars, according to the report.
The report encouraged the EU to consider using some of the revenue generated by the CBAM to accelerate cleaner production technologies in developing countries.