EU's Carbon Tax Plan: Limited Impact on Emissions and Challenges for Asia

The European Union's (EU) plan to impose taxes on high-carbon imports could affect the economies of developing countries in Asia, according to a report by the Asian Development Bank (ADB).

EU's Carbon Tax Plan: Limited Impact on Emissions and Challenges for Asia
Photo by Timo Volz / Unsplash

The CBAM is designed to limit "carbon leakage" by imposing fees on imports of carbon-intensive products to encourage producers outside the EU to adhere to similar environmental standards. However, the ADB report suggests that while the CBAM will have a limited impact on climate change, it could slightly negatively affect developing economies in Asia.

The mechanism aims to create a level playing field, requiring foreign suppliers to pay a similar carbon emission fee as domestic suppliers. It is expected to reduce exports from Asia to the EU, especially from regions like West and Southwest Asia, with steel exports from India also being affected.

Neil Foster-McGregor, an economist at ADB, views the CBAM as a relatively limited policy at present, affecting only imports into the EU from six sectors. Despite global carbon pricing, the increase in production scale could lead to higher emissions. A fundamental change in production techniques may be a solution to this issue.

The CBAM could generate approximately 14 billion euros ($15.2 billion) in revenue by 2030, which would be used to finance climate initiatives in developing countries to decarbonize production. The goal is to encourage non-EU economies to adopt stricter climate policies, potentially reducing CBAM taxes for exporting countries that can prove they have paid for carbon pricing.

Regions in Asia with a higher proportion of carbon-intensive exports to Europe, particularly Central and West Asia, will be more negatively impacted by the EU's CBAM and emissions trading system.

Source: VOH