Experts say that the European Union’s Carbon Border Adjustment Mechanism (CBAM) through supply chain regulations and trade measures would be a game changer in tackling emissions.
The EU is set to introduce the CBAM, which in effect will make use of trade policy in an unprecedented manner to tackle carbon emissions, they said.
Dr Mohammad Abdur Razzaque, Chairman of Research and Policy Integration for Development (RAPID), told UNB the EU has been maintaining an emission trading system (ETS) to reduce greenhouse gas emissions of high carbon-emitting sectors.
Carbon price under the EU-ETS reached a record high at EUR 98 per tonne of CO2 on 18 August 2022. Since then it has somewhat fallen and fluctuates around EUR 70, which will be effective in trade in the EU market after 2026, he said.
Dr Razzaque, also an international trade expert, said the embedded carbon content in imports will be priced equivalent to the price of CO2 faced by EU domestic firms under ETS.
The transition phase is 2023-2025 -in this period importers will have to report emissions embedded in their goods without paying any charge, he pointed out.
The EU and EU parliament is working on such regulation to bring about execution by 2026, which may be shifted to 2027. Once in operation, the importers will have to pay for embedded emissions, buying CBAM certificates, Dr Razzaque said.
If a non-EU exporter establishes a carbon market, the corresponding cost will be deducted from total CBAM charges, he said.
According to the European Commission, the CBAM will initially apply only to a select number of goods at a high risk of carbon leakage, viz., cement, iron and steel, aluminum, fertilizers, and electricity, and will be operational from January 2023, said Md Jillur Rahman, Assistant Professor, Economics Department, Jagannath University.
He said that both the European Council and Parliament have adopted their positions on the Commission's proposal for a CBAM.
“The European Parliament proposes a gradual implementation of the CBAM beginning in 2027, and full implementation beginning in 2032 when the free allowances are completely phased out,” Jillur added, who is doing research on CBAM.
The Parliament proposes to broaden the scope of sectoral coverage to include organic chemicals, plastics, hydrogen, and ammonia. Gradually the coverage should be extended to cover all sectors under the EU ETS, he said.
Jillur said, the European Parliament, Council, and Commission will now engage in a trialogue (three-way dialogue) and discuss the differing viewpoints of the three institutions. The political process may be completed by the end of 2022 to adopt the final CBAM regulation for the Union.
Professor Abu Eusuf, department of development studies, Dhaka University, said many countries, including India, Vietnam, and China are taking measures to reduce carbon emissions to address the negative impact of climate change in line with the Paris Agreement.
“Bangladesh in its updated Nationally Determined Contribution (NDC) commits to unconditionally reduce greenhouse gas emissions by 6.73 percent (27.56 MtCO2e) from the business-as-usual scenario by 2030,” he said.
Prof Eusuf said that subject to technology and know-how transfer, and finance and investment support from the international community, Bangladesh intends to reduce GHS emissions by an additional 15.12 percent (61.9 MtCO2e).
“Bangladesh’s NDC commitments and actions for reducing carbon emissions appear to be much less ambitious compared to other comparable countries. China commits to reducing carbon dioxide emissions per unit of GDP by 60 to 65 percent (from the 2005 level) by 2030, while India intends to do the same from 33 to 35 percent,” he added.
The experts said Bangladesh’s major competitors have either already established or are in the process of developing carbon markets locally.
China launched its carbon market in 2021; Vietnam and India are in the process of establishing their internal carbon market. Vietnam wants to formally launch its carbon market in 2028.
The 8th Five Year Plan of Bangladesh aims to introduce green taxation on the consumption of fossil fuels, but it is not clear yet how this will be implemented.
However, no progress has been made so far. Therefore, the CBAM can disproportionately affect Bangladesh relative to other competitors.