{"id":614703,"date":"2024-02-06T00:00:00","date_gmt":"2024-02-06T00:00:00","guid":{"rendered":"https:\/\/enterpriseam.com\/egypt\/goinggreens\/fertilizer-cement-steel-and-aluminum-exporters-need-to-prepare-for-the-eus-carbon-border-adjustment-mechanism\/"},"modified":"2024-02-06T00:00:00","modified_gmt":"2024-02-06T00:00:00","slug":"fertilizer-cement-steel-and-aluminum-exporters-need-to-prepare-for-the-eus-carbon-border-adjustment-mechanism","status":"publish","type":"goinggreen","link":"https:\/\/enterpriseam.com\/egypt\/goinggreens\/fertilizer-cement-steel-and-aluminum-exporters-need-to-prepare-for-the-eus-carbon-border-adjustment-mechanism\/","title":{"rendered":"Fertilizer, cement, steel, and aluminum exporters need to prepare for the EU\u2019s Carbon Border Adjustment Mechanism"},"content":{"rendered":"

The economic impact of the EU\u2019s new climate and environmental, social, and<\/strong> governance (ESG) standards will most likely be felt in emerging markets more so than in Europe<\/strong>, and only a few EMs are ready for what\u2019s about to hit them. A few of the EU\u2019s most significant reforms that pertain to climate could \u2014 if not swiftly addressed by companies in emerging markets \u2014 cause many companies in EMs to be completely shut out of their primary export markets, according to a report<\/a> by Boston Consulting Group (BCG). <\/p>\n

The Egypt angle: <\/strong>Of the EU\u2019s new standards, the Carbon Border Adjustment Mechanism (CBAM) that is set to fully go into effect starting 2026 could have a considerable impact on Egypt\u2019s exports \u2014 particularly from the country\u2019s notoriously energy-intensive steel, aluminum, cement, and fertilizer industries.<\/p>\n

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CBAM IN A NUTSHELL-<\/p>\n

What exactly is the CBAM? <\/strong>Often referred to as the carbon border tax, the CBAM is a carbon emission tax imposed on goods that are imported into the EU. It is designed to put a \u201cfair price\u201d on emissions from the production of carbon-intensive goods that are imported into EU member countries, and aims to \u201cencourage cleaner industrial production in non-EU countries,\u201d according to the EU Commission<\/a>. <\/p>\n

The goal is to prevent carbon leakage: <\/strong>With the CBAM, the EU aims to de-incentivize companies from moving production to countries that have less ambitious climate regulations to avoid additional expenses and taxation, European steel industry association Eurofer told Reuters<\/a>. <\/p>\n

Starting this year, the CBAM requires that importers must document and report<\/strong> the carbon footprint of the aforementioned goods that they import, or risk facing penalties \u2014 measures that companies in the EU, UK, and Ukraine told Reuters<\/a> will have little initial impact. <\/p>\n

But this is all set to change in 2026<\/strong>, as importers will also have to pay the levy on the emissions that come from these goods. The carbon border tax will make up the difference between the local carbon price \u2014 if there is one \u2014 and the EU\u2019s carbon price. <\/p>\n

The cost of carbon: <\/strong>Companies in the EU currently pay c. USD 85 for every metric ton of carbon dioxide they produce. <\/p>\n

The mechanism will fundamentally shift the way many businesses source goods and<\/strong> materials: <\/strong>The CBAM will alter production costs by imposing a \u201cbrown penalty\u201d on high-carbon goods. In effect, \u201cthe combination of higher carbon costs and lower prices for green hydrogen fuel\u201d could lead to a shift in how companies evaluate their investments in goods with large carbon footprints, BCG argues. <\/p>\n

And more goods could be added to the list: <\/strong>Chemicals, polymers, mineral oil products, pulp, paper and other goods could also make the list by the end of the decade \u2014 and even high-emissions finished and semi-finished goods by 2040, according to BCG.<\/p>\n

Some of the most affected economies have challenged the CBAM: <\/strong>The South African government penned a letter (pdf)<\/a> to the European Commission expressing concerns over the mechanism, claiming that the tax \u201chas the effect of transferring the burden of climate action onto developing economies.\u201d <\/p>\n

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WHAT THIS MEANS FOR EGYPT-<\/p>\n

The CBAM will have a big impact on Egyptian industry and our export revenues: <\/strong>The EU is our largest trading partner and EU countries accounted for 31.1% of our exports in the previous fiscal year, according to data (pdf)<\/a> from the central bank. EU-bound exports of aluminum accounted for 79% of our total aluminum exports in 2022, along with 36.7% of iron and steel exports, 30.6% of fertilizer exports, and 4.1% of cement exports, according to World Bank data<\/a>.<\/p>\n

But we won\u2019t be the only the emerging market effected: <\/strong>The tax could also apply to 10% of the value of the EU\u2019s imports from China and Brazil, 25% of its imports from India, and could single-handedly lose Mozambique as much as 1.6% of its GDP, as more than half of the country\u2019s aluminum exports currently go to EU member states, BCG notes.<\/p>\n

No exemptions, even for least developed countries: <\/strong>The CBAM will provide no exceptions to low- and middle-come countries \u2014 which includes Egypt \u2014 or even for the world\u2019s least developed countries<\/a> (LDCs) like Afghanistan, Yemen, and Chad. <\/p>\n

And don\u2019t expect any of that the revenue raised from the carbon border tax to help the<\/strong> rest of the world to decarbonize: <\/strong>CBAM\u2019s revenues won't be used to finance LDCs\u2019 efforts towards de-carbonisation, despite the European Parliament having called for<\/a> the financing LDC\u2019s efforts towards decarbonizing \u201cwith an annual amount corresponding at least to the level of revenues generated by the sale of CBAM certificates,\u201d according to a report<\/a> from the Center for Global Development.<\/p>\n

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EGYPT NEEDS TO ADAPT-<\/p>\n

Local companies will have to take swift measures to maintain their positions in global<\/strong> value chains <\/strong>\u2014measures that include developing systems for disclosing information on their products\u2019 carbon footprint, documenting the amount of emissions associated with their production, distribution, and consumption, and keeping track of carbon taxes paid for their raw materials, the BCG says.<\/p>\n

Taking action to decarbonize at a company level: <\/strong>Companies in emerging markets need to \u201cdevelop a holistic sustainability transformation roadmap\u201d so they can decarbonize their operations and reduce their environmental footprint so their imports to the EU can remain competitive by avoiding as much as the CBAM levy as they can, the BCG suggests.<\/p>\n

A carbon tax of our own to match the EU: <\/strong>Because the tax is calculated on the difference between the local carbon price and the EU\u2019s, some countries around the world are considering implementing their own tax on high-carbon goods to avoid the levy. India is considering locally collecting the tax itself instead of the EU so it can use it for its own green energy transition, Reuters<\/a> reports.<\/p>\n

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Your top green economy stories for the week:<\/strong><\/p>\n