EU's CBAM to barely affect Asian voluntary carbon credits, end-product prices: Panelists

EU's Carbon Border Adjustment Mechanism, which levies a carbon tax on specific exports, is expected to exert little influence on Asia’s voluntary carbon market and only slightly affect end-product prices, according to panelists at the Asia Climate Summit in New Delhi Oct. 24.

The panelists agreed that CBAM will not impact demand for voluntary carbon credits, as these credits are ineligible for carbon tax compliance under European CBAM regulations.

"VCM credits are not usable for carbon tax purposes, so there will be no increase in demand or price in the voluntary market due to CBAM," said Alfredo Nicastro, senior vice president and global head of carbon markets at StoneX Carbon Solutions.

Instead, CBAM may necessitate a new type of certificate, referred to as a "CBAM certificate unit," required for compliance with CBAM rules. However, there could be a positive impact on the demand for compliance carbon credits in countries where these credits are accepted for carbon tax obligations.

"There is a possibility that CBAM might allow the use of compliance credits, as some countries accept them for carbon tax purposes," Nicastro added.

Renato Roldao, a member of the task force on international carbon pricing and market diplomacy at DG Clima of the European Commission, said CBAM allows for the deduction of carbon prices paid in non-EU countries from the adjustment on imported products.

Roldao added that cooperation between the EU and non-EU countries, through bilateral, multilateral and international agreements, could facilitate this process. This suggested that compliance credits from Asian countries may become eligible for CBAM.

Impact on Asian product prices

The panelists concurred that CBAM will have minimal impact on end-product prices in Asia.

"Only less than 2% of China's exports to the EU will be subject to CBAM, primarily affecting industries such as steel, battery metals, cement and aluminum," said Hew Slater, an energy and climate specialist at ClientEarth in Beijing.

Roldao said CBAM will apply to specific imports like cement, iron and steel, aluminum, fertilizers, electricity and hydrogen, with embedded carbon emissions assessed at the product level. Roldao added that "the price impact will largely be borne at the product level in Europe, not in Asia".

Nicastro echoed this view, saying, "While CBAM may slightly affect the prices of raw materials imported to Europe, it will not impact the prices of end products in Asia, as the costs will ultimately be transferred to end-buyers in Europe."

Additionally, CBAM will extend to certain sectors under the EU's Emissions Trading System, such as shipping, where the costs of offsetting emissions will also be transferred to European buyers.