Impacts of EU Carbon Border Tax on Developing Countries
ADB Study on EU Carbon Border Tax
A European Union initiative to impose tariffs on high-carbon imports may have adverse effects on developing nations in Asia, according to a recent report by the Asian Development Bank (ADB). The ADB study suggests that while the Carbon Border Adjustment Mechanism (CBAM) aims to address carbon emissions, its impact on reducing greenhouse gases could be limited.
Challenges Faced by Developing Countries
The CBAM was introduced to tackle concerns about the EU’s emissions trading scheme (ETS) being circumvented due to outsourced manufacturing. However, the ADB warns that this mechanism could disproportionately affect Asian exports to the EU, particularly from regions in western and southwestern Asia. India’s steel industry may also face challenges due to CBAM.
Effectiveness of CBAM
Despite the EU’s efforts to level the playing field by making foreign suppliers pay a carbon price equivalent to domestic producers, the ADB believes that the CBAM may not lead to significant emission reductions. The report highlights the need for global cooperation in sharing emission reduction technology to combat rising carbon-intensive production in Asia.
Financial Implications and Policy Recommendations
The ADB estimates that CBAM could generate approximately 14 billion euros in revenue by 2030. The proceeds from this mechanism could be utilized to provide climate finance for developing countries to transition towards cleaner manufacturing practices. Additionally, CBAM aims to encourage non-EU economies to implement stricter climate policies.
Geopolitical Reactions to CBAM
Countries like India and China have expressed concerns about the implications of CBAM. India is considering imposing export taxes on CBAM-covered products sold to Europe, while China is expanding its ETS to cover exporting sectors like steel. Geopolitical tensions have arisen, with China cautioning against the misuse of climate policies for trade protectionism.
It is evident that while CBAM aims to address carbon emissions, its effectiveness in reducing greenhouse gases remains uncertain. The ADB emphasizes the importance of global collaboration and technology sharing to achieve meaningful emission reductions in the long term.
