CBAM . How the EU is shooting again on its own foot

The Carbon Border Adjustment Mechanism (CBAM) is a policy proposed by the European Union to address and tackle concerns about fair climate conditions and fair competition in international trade, while aiming to promote and establish consistent climate targets .

CBAM aims to ensure that industrial products and raw materials imported into the EU comply with the same climate standards applied to domestic industrial production. The idea is to prevent carbon leakage by simultaneously implementing a form of "climate social justice." It involves establishing a mechanism in which the imports have a price tag on their embedded carbon emissions 

This would be achieved by requiring importers to purchase carbon emission permits and allowances based on the carbon footprint associated with the manufacturing of their products. The emission permits would be obtained through the EU Emissions Trading System or an alternative market-based pricing system that is yet to be decided.

The Commission intends to address two fundamental issues with CBAM. Firstly, it aims to prevent carbon leakage, which occurs when European industries relocate to countries with less stringent climate regulations (such as India or China) to avoid the costs associated with emission reduction. It is assumed that CBAM would ensure that imported products to the EU are also subject to a price for carbon emissions, thereby leveling the playing field for European companies.

Secondly, it seeks to promote a level playing field in international trade. European companies must comply with stringent climate standards and pay a price for their emissions, while imported products are not required to meet these requirements. This creates a competitive disadvantage for European companies. The aim is to address this inequality by ensuring that imported products also have a cost associated with their CO2 emissions.

CBAM is born as part of the EU's broader climate strategy, which is the driving force behind the European Green Deal. The European Commission has announced plans to present a legislative proposal in this regard, which is a significant step towards establishing a cleaner, greener, and more future-conscious Europe, not only within the European Union but also on a global scale . The Commission sees this as significant  in a globally concerned world regarding climate change and the future we will leave for future generations. The European Union proclaims itself as a leader and beacon that the world must follow, championing this new proposal as a brand new world of well-being and green standards. It is an apparently innovative proposal that, along with other measures such changes in the planned obsolescence of goods  aiming to change the habits of the new Europe.

However, behind this acronym, there is a hidden blow to the industry, as it essentially becomes a revolutionary tax that harms European producers. The system is inherently inefficient and penalizes the consumer, who ultimately will bear the deferred costs in the final product price. It also creates a significant disadvantage, putting the competitiveness of producers at risk and fails to achieve real progress in effectively reducing CO2 emissions.

In theory, according to the EU, CBAM aims to leveling  the playing field between imported products and domestically manufactured products within the EU in terms of carbon emissions.

However, the implementation of this mechanism poses a series of challenges and problems that ultimately penalize the European industry. With CBAM, additional costs are imposed on producers who must continue to indirectly purchase carbon emission permits to import products into the EU. Additionally, the free allocation of emission allowances within the EU will gradually diminish  , as the World Trade Organization ensures that international trade is fair since both models are incompatible and antagonistic. Importers cannot be penalized with emission fees, and the EU manufacturing industry cannot receive free allowances for the same concept. Therefore, these allowances will gradually disappear as CBAM is enforced.

Ultimately, it is just a  hidden cost that only increases the financial burden on companies, especially small and medium-sized enterprises, who already face numerous economic challenges, and consumers with their meagre budget  ,will will ultimately bear these costs.

Once again, we see how the visionaries of the EU, instead of promoting innovation and investment in cleaner technologies, implement a draconian and revenue-generating mechanism. It is nothing more than a revolutionary tax that diverts financial resources from the industry without guaranteeing real improvements in reducing CO2 emissions. As mentioned, CBAM also presumes a reduction in access to CO2 allowances for European producers. Additionally, it creates new  bureaucratic complexity, resulting in yet another cost for EU taxpayers. Producers must now prove the carbon footprint of their products, which involves costly studies and measurements. This administrative burden only adds more obstacles without truly adding value, increasing productivity, or providing any real comparative advantage over others, diverting attention from true innovation and competitiveness. While European companies are obliged to comply with stricter climate standards and pay for their carbon emissions, foreign companies are not subject to the same restrictions in other markets .

Furthermore, the perversely designed system can lead to the relocation of industries. If European companies face higher costs due to carbon emission permits, they are likely to seek to relocate their production to countries with less stringent climate regulations. This not only results in job losses and reduced economic activity in the EU but can also lead to a global increase in CO2 emissions as production shifts to places with lower environmental standards allowing for less restrictive green certification under non-European parameters. It is no longer about productive relocation to so-called "low-cost countries" but to "less green countries" or countries with fewer environmental standards.

This honorable goal of the EU to reduce CO2 emissions by imposing a price on carbon emissions is, in reality, another setback to our industry, disregarding other important aspects such as transportation and consumption. For example, a non-European producer with access to clean energy can have their production certified as green (based on the standards of their country, which may not be at the same level as European standards) but may use old and polluting transportation to deliver its goods  to Europe. Additionally, the system does not promote innovation and the development of cleaner technologies; instead, it seeks to penalize less clean production by imposing additional costs on producers (and ultimately consumers) without providing a real incentive for them to invest in sustainable solutions. Instead of focusing on the development of more efficient technologies and environmental education, CBAM simply becomes a revenue-generating mechanism that does not address the core of the problem. We have seen something similar a few years ago with the imposition of REACh, which has proven to be ineffective 

The European Union has created yet another mechanism that penalizes the industry by forcing companies to divert resources for its implementation. It acts as a hidden cost that imposes a competitive disadvantage. Furthermore, it significantly reduces the mechanisms for emissions trading, as it must be in line with the World Trade Organization. What the EU sees as an environmental improvement is nothing more than another obstacle for European producers.

Instead of focusing on real and sustainable solutions, CBAM distracts attention from the need to invest in clean technologies and educate about the importance of sustainability. It is crucial to seek more balanced and effective approaches to addressing climate change, avoiding the negative impacts that CBAM can have on the industry and CO2 emissions.

The implementation of this system, which is already here , will clearly create a disadvantage related to "less green countries."

Major global traders such as the United States have not implemented anything similar, 

CBAM continues to create uncertainty and concern in the European scenario. If the global picture is already confusing and complicated with everything happening worldwide, the EU seems to be turning its back against the industry , after creating a revenue-generating system based on carbon emissions.

And, of course, if anyone within the industry dares to think that CBAM infringes international trade rules, they can file a legal complaint at  the World Trade Organization. But who knows how long it will take to resolve that dispute?

In the meantime, businesses and producers are forced to deal with uncertainties and potential trade barriers brought by CBAM.

So, we have the World Trade Organization, a great advocate for international trade, seemingly losing its voice when it comes to CBAM. Perhaps they are waiting to see how the situation unfolds before making a statement. Or maybe they are enjoying the sad spectacle of the European Union once again creating its own revolutionary tax system.

What a wonderful demonstration of leadership and clarity from our beloved EU!

The World Trade Organization doesn't want to get involved in any commercial  trouble; on one side , USA  big brother watching, and on the other,  China, where legislation is slack and susceptible to any interested manipulation. And what about India? It is gradually taking over the position of the world's "producer of everything" from China and has no interest in implementing environmental (or social or labor) measures. At the moment, they have no interest in hearing about CBAM or any other green proposal. It is no longer a matter of productive relocation to so-called "low-cost countries" in geopolitical terms, but to "less green countries." We are returning to a global system of production with two speeds and variable geometry. On this asymmetry  EU aims for super clean emissions ,  and on the other hand, countries strive to maintain their production in changing degrees of environmental control, without reaching the madness we are creating in Europe.

CBAM is ultimately another innovative and creative way for the European Union to shoot itself in the foot. As if we didn't have enough with the war in Ukraine, the energy crisis, and the rising interest rates to go for this self-flagellation in Europe, with this new tax that nobody knows how it will be implemented, let alone controlled. However, there are already legions of European and EU lawyers offering training courses and planning the implementation of CBAM, rubbing their hands. By the way, has anyone considered what CO2 emissions have been produced as a result of Russia's large-scale terrorist actions? Perhaps the EU will implement another tax, CBAM 2, to mitigate this  impact.