European Union should consider CBAM implications on international trade: UNCTAD Report

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The European Union (EU) carbon border adjustment mechanism (CBAM) may change trade patterns in favour of nations where production is comparatively carbon-efficient but do little to lessen climate change,  an UNCTAD report warned.

The report shows the CBAM’s potential implications on carbon emissions, international trade, income generation, employment opportunities inside and outside the EU, with a special focus on developing and vulnerable countries.
Announced on July 14, the CBAM is likely to introduce new CO2 emissions-cutting measures transitionally in the year 2023 and finalize them before 2026.

“Climate and environmental considerations are at the forefront of policy concerns, and trade cannot be the exception. CBAM is one of these options, but its impact on developing countries also needs to be considered,” UNCTAD Acting Secretary-General Isabelle Durant said.

The report confirms that launching the CBAM would lower part of the carbon leakage produced by the different climate change ambitions between the EU and other countries.  

The UNCTAD report goes on to say that several of the EU’s trading partners exporting goods in carbon-intensive sectors have expressed concerns that the new carbon border adjustment mechanism would substantially curtail their exports.

“Exports by developing countries across the targeted carbon-intensive sectors would be reduced by 1.4% if the CBAM is implemented with a price of $44 per tonne of embedded CO2 emissions, and by 2.4% if it’s implemented with an $88 per tonne price,” said the report.

However, the consequences would differ significantly by country depending on their carbon production intensity as well as export structure.