EU carbon tariffs to take effect on October 1

        In December 2022, the European Parliament and the European Council reached a temporary agreement to determine that the EU carbon tariff will start trial operation in October 2023. At this point, the EU will become the world's first economy to impose a "carbon tariff". This also means that high carbon emissions in any link of the supply chain will result in more carbon control costs for exported products.

        Carbon tariffs are a border measure, and the core is the carbon content of the product. The scientific name of "carbon tariffs" is also known as the Carbon Border Adjustment Mechanism, or CBAM in English. This mechanism refers to the fact that certain goods will release greenhouse gases such as carbon dioxide during production. When these goods enter the EU customs territory, they need to pay an additional amount to the EU, and the amount is related to the amount of greenhouse gases released when the goods are manufactured.

        ◆Implementation period: Trial operation will start on October 1, 2023, the transition period will last until December 31, 2025, the tax will be officially levied on January 1, 2026, and it will be fully implemented before 2034.

        ◆Purpose: To solve carbon leakage.

        ◆ Coverage: Steel, cement, aluminum, fertilizers and electricity, and extended to hydrogen, indirect emissions under certain conditions, certain precursors, and some downstream products such as screws and bolts and similar items made of iron or steel.

        ◆Process: Import products under CBAM → Estimate embodied carbon emissions → Estimate the number of CBAM certificates required to be purchased (excluding the carbon price paid in the production country and the free frequency allocation of similar products in the EU) → Verification and certification/submission of CBAM declaration form → Purchase CBAM certificates → Clear CBAM certificates → Repurchase or cancel CBAM certificates

        The future of CBAM depends on the acceptance of the global community.

        During the transition period of more than two years (October 1, 2023 to December 31, 2025), importers only need to report when importing goods subject to CBAM, without actually purchasing CBAM certificates. From the perspective of corporate costs, companies do not need to increase the cost of purchasing additional CBAM certificates during the transition period. According to EU requirements, importers' reporting obligations include the quantity, country of origin, product code, and carbon emission data implied by the imported goods.

        However, in the formal implementation stage, if importers import goods subject to CBAM, they will need to purchase CBAM certificates for the carbon emissions implied by the goods, and accordingly, importers will need to increase their costs.

        Whether in the EU or China, machinery and vehicles, chemicals and other manufactured products dominate the imports and exports of both sides, so the implementation of carbon tariffs will also have a significant impact on my country's chemical industry. According to a World Bank research report, if the "carbon tariff" is fully implemented, Chinese manufacturing may face an average tariff of 26% in the international market, and exports may decline by 21%.