No Super-Hero solution to global warming.
In the Antarctic, a series of unexpected and frightening changes are suddenly in play. Predictions by the Intergovernmental Panel on Climate Change (IPCC) about the stability of the ice sheets around the southern pole are shown to be dangerously complacent. Dr Martin Siegert, director of the Grantham Institute for Climate Change at Imperial College London, reports the most extreme heatwave ever recorded on Earth in Antarctica in March 2022.
CBAM is too little, too late, but it is the best we have got.
If you already know about the EU’s Carbon Border Adjustment Mechanism (CBAM), you can stop reading. This is NOT an expert review. If, however, you have never heard of it, then this may be a useful introduction. CBAM is an EU scheme designed to prevent leakage of emissions of greenhouse gases (GHGs) such as carbon dioxide. Leakage is when products are imported into the EU after they have emitted GHGs elsewhere.
Timescale
The EU adopted the CBAM regulations in May 2023. The introductory phase of the CBAM applies to the most carbon-polluting commodities: cement, iron, steel, aluminium, fertiliser, electricity and hydrogen.
Reporting requirements have been in place since 1st October 2023 however, whilst there is a reporting requirement, there is nothing to pay until 2026.
After 2026, importers will have to buy ETS credits equivalent to the imported products’ embedded GHG emissions. For the past two years the price of ETS credits has varied from EUR60 to EUR100 per tonne of carbon dioxide emitted.
The UK announced in December 2023 its intention to introduce a CBAM, with consultation on precise design in 2024.
How it works
Methodologies for calculating and reporting embedded GHG emissions have been published. Importers who can demonstrate that a carbon tax equivalent has been paid elsewhere will be exempted from the full ETS purchase requirement, to the extent that payments in other territories qualify.
There are provisions for handling ‘complex’ imports, those that included the six basic CBAM commodities in their manufacturing processes. It is not clear (to me) how an importer should know whether imported goods have used CBAM-commodities during manufacture and if there is a cut-off, below which the imports are exempt from CBAM liabilities.
EU’s Global Leadership
The EU is already a leader in international pricing of carbon emissions. The Economist (1st October 2023) summarised the situation in its article ‘How carbon prices are taking over the world’. The Economist, always in favour of carbon-pricing, points out that 23% of global emissions (in 49 countries) are already covered by a carbon price; and that another 23 countries are considering them. Some (Indonesia, Japan and Vietnam) are creating new markets and levies; others with existing carbon markets (China and Australia) are beefing up their schemes; and leading countries are considering cross-border schemes like the EU’s CBAM.
The momentum is already causing nearly all countries to track and monitor carbon emissions in order to avoid their home industries becoming disadvantaged. The Economist article notes however that hardly any governments have had the courage to apply carbon pricing to residential property of cars.
Awareness
Companies who import cement, iron, steel, aluminium, fertiliser, electricity and hydrogen are presumed to be fully aware of CBAM and its implications.
Those who import products using these commodities in upstream manufacture (so-called complex products) are likely working through the implications of a reference framework published by the EU. These require repeated (recursive) calculations for each component of a product.
Many companies however – it may be true to say most – are still unaware of the existence of CBAM and their potential liabilities under it, even though the first reporting deadline has past.
What’s to be done?
CBAM is an ambitious project. There is a danger that lobbyists could hobble it by critically attacking its operational details during introduction and roll-out.
Engagement with the EU by affected companies is mainly through industry associations. It is important that these help the EU meet its self-imposed deadlines, not lobby against it. This is essential if the rest of the world is to take notice and non-EU countries are to align their own initiatives to it.
It is already too late to avoid serious and imminent consequences of global warming. We are now at the point of mitigating global disaster. Antarctica, previously not the centre of concerns about global warming, was thought to be stable due to its sheer mass. It is now warming at twice the global average and risks becoming, not a buffer against global warming, but a driver of it.
CBAM has to work. It is not enough that it has entered its introductory phase in the EU: it faces political hazards. To maintain the commitment of wavering politicians, public support must be clear and insistent. Currently however the public hardly knows about it.