1) CBAM is carbon tax?
The Carbon Border Adjustment Mechanism is a mechanism, not a tax. CBAM’s purpose is leveling the playing field for businesses in Europe subjected to carbon pricing under the European Emissions Trading System (EU-ETS) and businesses outside of Europe. If the importers import from countries that already have a carbon pricing mechanism, the price of the CBAM certificate they must purchase will be adjusted to the carbon price they exporters paid in the host country. Therefore, if the carbon price in the exporting country is already equivalent to the quota price of the EU-ETS, then the importers will not have to pay extra to buy the CBAM certificate.
2) CBAM will be implemented from 2023?
According to the most updated discussions, CBAM will be implemented starting from October 2023, exporters will have the obligation to report greenhouse gas emissions, but importers do not need to pay for CBAM certificates. This is called the transition period. It is only in 2026 when the EU removes the free allocation in the EU-ETS that CBAM is officially applied and businesses have to pay.
3) CBAM will be applied on all Vietnamese products exported to the EU?
Under the current proposal, CBAM will only apply to a few specific goods from eight main sectors: iron and steel, refineries, cement, aluminium, organic basic chemicals, hydrogen, fertilisers, and electricity.
4) CBAM will have a huge impact on the Vietnamese economy?
Although Vietnam exports many goods to the EU, it is mainly telecommunications equipment, electronics, footwear, textiles and furniture. The amount of goods from the sectors subjected to CBAM are very low, only about 8% of the total exports, which mainly are cement, iron and steel, aluminum (the other sectors export very little or do not export to the EU).
While the impact on the economy as a whole is likely small, the impact on the business level is quite significant given that carbon prices in Europe are currently around 100 EUR/ton CO2. In the long term, if the EU expands the scope of CBAM to other sectors, or other countries also apply CBAM, this mechanism may have a greater impact on the Vietnamese economy.
Nguyen Hong Loan (compiled)
