EU carbon tariff will have limited impact on climate change–ADB
Initiatives aimed at curbing carbon emissions in trade in goods should be extended to other regions outside of the European Union, particularly Asia, according a study conducted by the Asian Development Bank (ADB).
“The fragmented nature of carbon pricing initiatives in terms of sectors and regions covered, including CBAM [carbon border adjustment mechanism], can only partially limit carbon leakage,” said ADB Chief Economist Albert Park.
“To significantly reduce carbon emissions globally, while also making sure climate efforts are more effective and sustainable, carbon pricing initiatives need to be extended to other regions outside the EU, especially Asia,” he added.
In a statement it issued on Monday, the multilateral development bank said EU import charges on “carbon-intensive” products are expected to have a limited impact on climate change and only a “modest negative effect” on economies in Asia and the Pacific.
Set to go into force in 2026, ADB noted that the CBAM of the EU will impose import charges on products, such as steel, cement, and electricity, based on the carbon dioxide emissions embedded in their production.
ADB noted that the charges are aimed at curbing “carbon leakage,” the result of polluters moving production from countries with “stringent” regulations or high carbon prices to those with less stringent regulations or lower prices.
According to the Asian Economic Integration Report (AEIR) 2024 which was released on Monday, CBAM is likely to reduce global carbon emissions by less than 0.2 percent relative to an emissions trading scheme with a carbon price of 100 euros ($108) per metric ton and no carbon tariff, statistical modeling showed.
“At the same time, the charges may reduce global exports to the EU by around 0.4 percent and Asia’s exports to the EU by around 1.1 percent, while negatively affecting the output of some manufacturers within the EU,” the report read.
The report noted that Asian subregions with higher shares of carbon-intensive exports to Europe, particularly Central and West Asia, would be more negatively affected by CBAM and the EU’s emissions trading system.
Given the expected distributional impacts, especially on developing economies in Asia, the report said there is a need for “proper” incentive mechanisms to encourage widespread adoption of carbon pricing.
As carbon emissions from Asia are growing faster than in other regions, the report recommended measures to decarbonize international trade and global value chains.
“Among the recommendations are implementing targeted policies that encourage trade in climate-friendly products and services; supporting environmental regulations and standards; facilitating the transfer of green technologies; and supporting governments and international institutions in promoting green infrastructure and investments,” ADB said.
The report also called for global cooperation to develop “universally accepted” accounting frameworks that can “effectively” track emissions planted in products and services.