EU border tax will do little to cut emissions, study says

An EU plan to impose tariffs on high-carbon imports could hurt developing countries in Asia but is unlikely to lead to big reductions in greenhouse gas emissions, the Asian Development Bank (ADB) said in a report published yesterday.

The carbon border adjustment mechanism (CBAM) was introduced to address concerns that the outsourcing of manufacturing had put large parts of the EU’s supply chain beyond the reach of its emissions trading scheme (ETS), a situation described as “carbon leakage”.

It was designed to level the playing field and make foreign suppliers pay the same carbon price as domestic ones, even if they are not subject to an ETS or carbon tax at home.

ADB said CBAM was expected to cut Asian exports to the EU, particularly from western and southwestern Asia, with steel from India also likely to take a hit. But any small reduction in emissions would quickly be offset by the continuing increase in carbon-intensive production throughout Asia, and mechanisms to share emission reduction technology would be more effective, it said.

“It’s a limited policy at the moment,” ADB economist Neil Foster-McGregor said.

“It only affects imports into the EU (and) only covers six sectors. The way the scale of production is increasing, even if we do this carbon pricing more broadly across the globe, you’re still going to see rising emissions unless we see a fundamental change in production techniques.”

CBAM could raise about €14bn (R293bn) in revenue by 2030, and the proceeds should be used to provide climate finance for developing countries to decarbonise manufacturing, Foster-McGregor said.