EU's CBAM to spur other countries to introduce carbon border levies: IETA

The EU's introduction of a Carbon Border Adjustment Mechanism is prompting some countries to introduce their own carbon border levies while others are considering retaliatory measures, the International Emissions Trading Association said April 18.

IETA, in a report, gave an overview of country-level responses to CBAM, finding that some -- including Australia, Turkey and the UK -- were developing their own carbon border levies in response.

"CBAM is making waves around the world, although it is still a decade before the system will be fully in place" IETA EU Policy Director Julia Michalak said in a statement. "It has triggered varying reactions ranging from threats of WTO challenges to commitments to establishing domestic carbon markets."

Japan, Singapore and South Korea were the most likely supporters of CBAM, IETA said.

Canada may enter into bilateral agreements with the EU, while South Korea was considering changes to its own emissions trading system, the association said.

However, more hostile responses have come from petrostates and other countries exposed to exports to the EU.

"South Africa calls it discriminatory, India is considering retaliatory measures and China has raised concerns within WTO," IETA said.

Phasing in from 2026, CBAM will levy a carbon tax on imports of selected energy intensive materials and products into the EU, removing the gap between the EU's ETS carbon price and the export country of origin's carbon price.

Analysis by S&P Global Commodity Insights found Brazil, Canada, South Africa and Turkey will be most exposed to the mechanism, with iron and steel by far the biggest sector targeted.

Platts, part of S&P Global Commodity Insights, assessed nearest December EU ETS allowances at Eur69.98/mt CO2 ($75/mt CO2) on April 17.

UK Emissions Trading System allowances settled at GBP35.62/mtCO2 ($44/mt) on April 17, while South Korea allowances were assessed at just Won 8,800/mt ($6.4/mt).

The new EU carbon border tax entered into application in a transitional phase Oct. 1, 2023, with the first reporting period for importers originally set to end Jan. 31, 2024. That was later extended by 30 days.