EU’s carbon regulatory mechanism enforced in October
‘According to the World Bank’s Carbon Border Adjustment Mechanism Exposure Index, the Philippines’ exposure is not that big and the measure may only affect cement.’
Daily Tribune‘According to the World Bank’s Carbon Border Adjustment Mechanism Exposure Index, the Philippines’ exposure is not that big and the measure may only affect cement.’
Industries and trading partners of the European Union are advised to become well informed about the Carbon Border Adjustment Mechanism as the EU gears up to enforce the mechanism gradually beginning next month.
CBAM is the EU's landmark tool that puts a fair price on the carbon emitted during the production of carbon-intensive goods exported to the EU. It will enter into application in its transitional period on 1 October 2023.
In a nutshell, CBAM intends to eventually levy an import tariff on carbon-intensive goods from abroad in a bid by the EU to fight global climate change.
For developing countries like the Philippines, this carbon regulatory measure may pose additional green requirements for their exports and significantly impact the competitiveness of their carbon-intensive products.
However, compliance can present opportunities for businesses to become more competitive players in the market, according to experts.
Encourage cleaner industrial production
The CBAM will be gradually implemented with the aim to encourage cleaner industrial production in non-EU countries and align the mechanism with the phase-out of the allocation of free allowances under the EU Emissions Trading System, said Xavier Vanden Bosch of the European Commission.
CBAM also seeks to contribute to decarbonization globally and reach climate neutrality by 2050.
Its implementation is likewise seen to help avoid carbon leakage, or the risk that EU-based companies will move to countries with less stringent climate policies or that EU products will get replaced in the EU market by carbon-intensive imports, said Bosch in an online presentation last 6 September.
The CBAM regulation officially entered into force on 16 May 2023. The CBAM itself will enter into application in its transitional phase on 1 October, with the first reporting period for importers set to end on 31 January 2024.
In line with this, the EU adopted on 17 August 2023 the Implementing Regulation that lays down the reporting obligations of EU importers of CBAM goods during the transitional period.
The CBAM will initially apply to imports of certain goods and selected precursors whose production is carbon intensive and at most significant risk of carbon leakage. These include cement, iron and steel, aluminium, fertilizers, electricity and hydrogen.
In later years, the CBAM will likely be expanded to cover additional carbon-intensive goods.
Philippine exposure not that big
According to the World Bank's CBAM Exposure Index, the Philippines' exposure is not that big and the measure may only affect cement.
However, the green movement continues to gain momentum worldwide, including in the United States. This makes it prudent for the Philippines to start putting environmental and climate change issues high up in their policymaking agenda, according to analysts.
Once the CBAM system takes full effect on 1 January 2026, importers will need to declare each year the quantity of goods imported into the EU in the preceding year and their embedded GHG. They will then surrender the corresponding number of CBAM certificates. The price of the certificates will be calculated depending on the weekly average auction price of EU ETS allowances expressed in euro per tonne of CO2 emitted.
If a company wishes to emit more than its allocation, it must buy more. The trading sets a price on carbon, providing an incentive for firms to reduce emissions.
The phasing-out of free allocation under the EU ETS will take place in parallel with the phasing-in of CBAM in the period 2026-2034.
