BASIC bloc concerned over "discriminatory" carbon taxes, climate finance gaps

Moves by rich nations to adopt carbon border taxes and trade-distorting subsidies were "discriminatory", the BASIC bloc of four newly industrialized countries -- Brazil, South Africa, India, and China -- said in a statement.

The international grouping also called on developed nations to boost their climate finance commitments to developing countries, while expressing concerns that many were "backtracking" on their climate targets.

Ministers from the BASIC countries met in Wuhan, China, on July 21, almost four months before the 29th UN Climate Change Conference commences in Azerbaijan, where climate finance will dominate climate negotiations. Climate finance refers to all financial flows addressing the causes and consequences of climate change.

The BASIC countries said in their statement, released by China's environment ministry, that developing countries needed to work together to ensure they were not adversely impacted by carbon border taxes such as the EU's carbon border adjustment mechanism (CBAM) "and other unilateral measures that undermine multilateralism and threaten sustainable development."

CBAM essentially levies a tax on imports of selected carbon intensive materials and products --including aluminum, cement, electricity, fertilizers, hydrogen, iron and steel -- into the EU, removing the gap between the EU Emissions Trading System carbon price and the export country of origin's carbon price.

CBAM response

Many developing nations, especially BASIC countries, have been critical of CBAM because many of their exports go to the EU, leaving their economies exposed.

Analysis(opens in a new tab) 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.

CBAM is in its transitional phase, with the carbon levy set to formally start from 2026.

Carbon prices vary significantly on a country-to-country basis due to the differing sectoral scope of many emissions trading systems globally.

Platts, part of S&P Global Commodity Insights, assessed nearest December EU ETS allowances at Eur68.71/mt CO2 ($74.5/mt CO2) on July 24.

UK Emissions Trading System allowances settled at GBP39.61/mtCO2 ($51/mt) on July 24, while South Korea allowances were assessed at Won 8,950/mt ($6.58/mt)

South Africa has repeatedly called CBAM discriminatory, while India has been considering retaliatory measures and China has raised concerns within the World Trade Organization.

In mid-July, South African President Cyril Ramaphosa said(opens in a new tab) his country needed to decarbonize fast to reduce its exposure to carbon taxes like the EU's CBAM.

Developing vs developed

The BASIC bloc reignited the thorny issue of climate finance, urging developed countries to abide by their legal commitments on both mitigation and finance, accusing them of diluting their climate finance legal obligations.

They said they were concerned "over the inadequate and insufficient support provided by developed countries so far and urge them to close the gap in their climate finance commitments of $100 billion in accordance with multilaterally agreed climate finance definitions."

The bloc also said they wanted to serve as a "stabilizing force for the Global South in navigating the climate crisis" noting the "leadership void left by developed countries".

Global leaders are under pressure to build a new global climate finance framework, known as the New Collective Quantified Goal on Climate Finance for COP29.

Commodity Insights analysts have noted there was still a significant divergence between the preliminary position developed and developing countries on key elements of the structure and the scope of the new climate finance goal.

The limited progress on climate finance over the years has fueled mistrust between developed and developing parties.