The EU carbon border adjustment mechanism affects Vietnam's steel and aluminum exports
April 23, 2023
The European Union's Carbon Border Adjustment Mechanism (CBAM), which will take effect in 2024, will affect the production and trade of Vietnamese manufacturing companies, especially in high-carbon emission industries such as steel, aluminum and cement, Vietnam News reported on April 15.
The CBAM aims to level the playing field for European companies by imposing a carbon border tax on imports from countries that do not have equivalent carbon pricing measures, the report said. Eu members are expected to start piloting CBAM in October and it will initially apply to imports from high-carbon leak-risk, high-carbon emitting sectors such as steel, cement, fertiliser, aluminium, power and hydrogen, which together account for 94% of EU industrial emissions.
Vietnam is a major exporter to the EU and after the implementation of the CBAM, Vietnamese companies will have to ensure that their exports to the EU are taxed at the same level as those paid by local EU manufacturers, the report said, citing an analysis by Sirpa Jarvenpaa, director of the Southeast Asia Energy Transformation Partnership. CBAM will help with the energy transition and the reduction of carbon emissions, but the technical complexity of determining carbon tax rates also poses difficulties for Vietnam.
According to experts' forecasts, steel will be the industry most affected by CBAM in Vietnam, followed by aluminum. As a result of CBAM, Vietnam's steel production is expected to decline by 0.8% and exports by 2.3% by 2030; Aluminium production will fall by 0.4 per cent and exports by 4.3 per cent.
While many of the companies surveyed do not see CBAM as a big threat at the moment, it could have a big impact if similar schemes are rolled out in countries such as the United States and Japan, the report said. Vietnamese companies need to prepare early to cope with the impact of CBAM on global market competitiveness.
