The combined implementation of the CBAM and phaseout of free allocation will increase production costs for both EU and third country producers, which will push up the selling price of CBAM goods in EU markets. In addition, third country producers are able to minimise CBAM costs by strategically selecting inputs and processes so as to export to Europe goods with lower declared emission intensity (resource shuffling). Some exporters might therefore increase profit on their product sales.
If third countries keep trading with the EU “as usual”, the CBAM in its current scope could collect €11.3 billion in fees annually. CBAM fees can be reduced to €7.3 billion (worldwide) if third country producers do resource shuffling, and further down to €7.0 billion if their national authorities set up carbon pricing.
The real cost of the CBAM to third countries should however take into account extra revenues expected from the sale of goods into Europe at higher prices. Once these revenues are factored in, the net cost of the CBAM is reduced to €5.0 billion across all countries under business-as usual conditions and in the scheme’s current coverage. This goes down to €995 million if exporters do resource shuffling, and to only €715 million (about 0.07% of the value of imports) if all trade partners implemented a €50 carbon price. Resource shuffling is a way of minimising CBAM costs and sometimes profiting from the scheme. However, such practice does not reduce emissions and could hinder the EU’s efforts in phasing out free allocation in the EU ETS. This may press the EU to change some of the rules to reduce the gains achievable through resource shuffling.
It is therefore not preferable for EU trade partners to build long-term strategies based on resource shuffling. In contrast, implementing carbon pricing makes it possible for third countries to dramatically reduce CBAM costs- and even benefit from the mechanism-- while creating real emission reduction incentives. It also makes third country producers indifferent to changing EU emission reporting rules, thereby reducing uncertainty.
About this series
“European Union Climate and Energy” is a section with a series of reports and other publications designed to provide insight into the EU’s ambitions in the field of climate and energy policy development. Each publication in this series focuses on the EU’s global engagement in a clean transition or on how partner countries’ climate and energy ambitions relate to the EU. This series aims to provide a comprehensive understanding of the EU’s engagement strategies in the field of sustainable energy cooperation, climate change adaptation and mitigation as well as its partnership policies in the field of climate and energy.
Nicole Linsenbold
