International Carbon Tax: Who Will Pay for The EU's Green Future?

(19 July 2021) As a part of the European Green Deal, the European Commission has presented a carbon border adjustment mechanism (CBAM) for selected sectors aimed at addressing the risk of climate change by reducing GHG emissions in the European Union and globally.

The current list of CBAM goods include five broad commodity groups — aluminum, cement, electricity, fertilizers, and iron and steel — but the list may be extended in the future.

To ensure that the price of imports more accurately reflects their carbon content, EU imports of CBAM goods (or domestic consumption of imported goods) will be subject to a carbon tax, which is expected to bring around 10 billion euro of additional revenue per year into the EU budget.

The current plan is for the CBAM to be fully implemented in 2026, after a 2023–2025 transition period during which declarants of imported CBAM goods will have to report, on a quarterly basis, the actual embedded emissions in goods imported, detailing direct and indirect emissions as well as any carbon price paid abroad.

• 2019* data on EU-27 imports of CBAM goods shows that exporters in Russia, China, and Turkey will suffer the most. Together, these three countries supply 40% of total EU-27 imports of CBAM goods.
• With 2019 export volumes and the current carbon price of $44 per metric ton of CO2, the new carbon tax on CBAM goods exported to EU-27 would amount to US$663 million annually on goods from Russia and $240 and $179 million, respectively, on goods from China and Turkey, according to CBAM ad valorem equivalent estimates from the UNCTAD.
• Total 2019 EU-27 imports of CBAM goods came to $60 billion, including $39 billion of steel and $14 billion of aluminum, indicating that the producers of industrial metals will be the largest payers of the international carbon tax.

*2020 data on global trade by commodity and partner is available at Knoema. This dashboard focuses on 2019 data, which is more likely to be representative of typical EU CBAM imports given the global economic and trade disruptions of 2020.