New EU Carbon Emissions Tariff Will Significantly Impact Businesses, Highlights Report from The Conference Board

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Sep 28, 2023, 02:00 ET

BRUSSELS, Sept. 28, 2023 /PRNewswire/ -- European importers face rising prices and administrative bottlenecks as the EU's new carbon emissions tariff comes into effect, as detailed in a new report from The Conference Board. The report comes in the lead-up to the first enforcement phase (starting October 1) of the EU's Carbon Border Adjustment Mechanism (CBAM), a system that will levy imports of carbon-intensive goods, closing the price gap with EU-made products.

Navigating Europe's Carbon Tariff: What is CBAM and What Does it Mean for Business? surveyed European Members of The Conference Board on how they expect CBAM to affect their companies. 83 percent of respondents–primarily senior procurement and sustainability executives–anticipate prices will rise, and 75 percent expect CBAM to influence their buying choices going forward.

"Our Europe-based Members are clear that implementing CBAM will increase prices of carbon-intensive products, possibly with knock-on effects for consumers," said Sara Murray, Managing Director, International, The Conference Board. "Our latest insights will help our Members better understand their responsibilities and the challenges they must prepare for over the coming 18 months."

Among the report's key insights:

Prices for regulated products are expected to rise immediately from the start of implementation, years before the first tariffs are collected:

Under the first phase of CBAM, importers of products in six regulated categories—iron & steel, cement, fertilizers, aluminum, electricity generation, and hydrogen—will have to begin reporting carbon emissions to EU authorities.
Limited administrative capacity in some EU countries means that CBAM's price impact will likely be felt even before the charging period for the tariff—likely around €100 per tonne of carbon emissions—comes into effect in January 2026.

Lack of verification capacity may create bottlenecks at key locations:

Europe faces a serious shortage of qualified 'verifiers' who check importers' declared carbon emissions.
Belgium—the EU's second-largest steel and iron importer and home to Antwerp, its second-largest port—has only two qualified verifiers.
Six EU member states, including Ireland, have no verifiers at all.

Uneven customs capacity across the EU poses additional challenges for CBAM implementation—putting the onus on Brussels to take action:

Varying levels of customs efficiency among different member states are likely to present another problem for businesses.
Italy, for example, is the EU's largest iron and steel importer, but its customs declaration process is lengthy—meaning that, with CBAM, importers may experience even longer queues to get their goods through Italian ports.

Current attempts to ease the administrative burden are likely to fall short:

The EU is expected to relax some accreditation rules for verifiers, but such measures may not address the problem as many verifiers are already operating at capacity.
It is already quite common for verifiers to decline new requests to audit European-based manufacturers' emissions.

"Without fast action to address the administrative problems that importers will begin to face from next week, there is a risk that CBAM acts as a drag on the European economy," said Anuj Saush, European ESG Center Leader at The Conference Board. "The six categories of goods that are regulated under the legislation account for 4.95 percent of all EU imports, valued at €133.21 billion. Companies importing goods into countries like Belgium, Italy, and Ireland should take a careful look at how they will meet demand over the next few months."

Effects will vary widely depending on the origin of imports:

CBAM has been designed to close the price gap between imports of carbon-intensive goods from non-EU countries without carbon-pricing schemes and EU-produced goods.
Exports of these goods to the EU from countries that already have carbon pricing systems may not have to pay the fee, depending on how their carbon price compares to the EU's Emissions Trading Scheme.

About The Conference Board
The Conference Board is the member-driven think tank that delivers Trusted Insights for What's Ahead™. Founded in 1916, we are a non-partisan, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States. www.ConferenceBoard.org

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