Impact of the Carbon Border Adjustment Mechanism on the Global South
Published in Economics
The unprecedented economic development experienced by Countries located in the Global North after the establishment of the modern industrial system can be surely identified as one of the primary drivers of the actual climate crisis.
Developed Countries are unanimously recognized as the major responsible actors in the current scenario of environmental degradation, while Developing Countries and Less Developed Countries, often located in the Global South, are generally considered to have minor shares of historical responsibility. This factual situation has been repeatedly recognised by the international community, especially by means of the establishing and affirmation of the so-called “common but differentiated responsibilities principle”(CBDR), that, while reaffirming that environmental matters require shared actions and common commitment, points out the diverse entity of efforts that Developed and Developing Countries need to undertake in order to counteract climate changes and mitigate the effect of the climate crisis.
In this scenario, the European Union is implementing a broad set of environmental policies and is currently defining an ambitious environmental legislation. Among these measures, the European Green Deal represents a milestone in the Union’s climate strategy, as it sets unprecedented and pioneering goals, having the main objective of “transform[ing] the EU into a fair and prosperous society, with a modern, resource-efficient and competitive economy where there are no net emissions of greenhouse gases in 2050 and where economic growth is decoupled from resource use”.
In order to achieve these decarbonisation and climate neutrality targets, the Union has defined several strategies, as the ones planned in the Fit for 55 package: by means of this set of laws, the Union aims to reduce greenhouse gas emissions by at least 55% by 2030.
The new EU Carbon Border Adjustment Mechanism (CBAM) is part of this package. This Mechanism targets carbon intensive products imported from Third Countries as it puts an additional fair price on carbon emissions generated during the production processes in the failure of proof of payment of an equivalent carbon price in the Country of origin.
The CBAM applies to carbon intensive goods entering into the internal market and has been designed to avoid the risk of frustration of EU’s environmental measures and climate actions due to polluting production systems in Third Countries. The CBAM has also been conceived as an efficient mean to contrast the risk of carbon leakage and to foster ecological transition and decarbonization processes in Third Countries.
However, the implementation of the EU CBAM is expected to have several downsides and negative consequences with regard to Developing and Least Developed Countries, as these Countries, in the technical and/or financial impossibility of starting a green transition and modernising the industrial sites, may interrupt the trade flows with the Union, as the additional price applied on their products by the EU CBAM may determine a significative loss of competitiveness for these goods.
In this scenario, far from having a virtuous impact on the climate crisis, the CBAM may generate detrimental economic situations for EU trade partners located in the Global South, without fostering any change in their current production patterns.
To avoid these negative effects and to further the beneficial impact of EU CBAM on the environment, the European Union shall define effective strategies to support Third Countries, especially LDCs and Developing Countries located in the Global South, to start their green transition. The article depicts several proposals that have been raised about the possible strategies of EU assistance to these Countries.
Another crucial challenge the Union should face in the future is to prove to the international trading partners, often inclined to consider the new CBAM as a protectionist measure more than as a strategy to mitigate the climate crisis, the potentialities of the Mechanism in counteracting the effect of climate change and the beneficial impacts of its implementation on the environment, so as to push Third Countries to set a fair price on carbon emissions and to develop their own Mechanisms to counteract carbon leakage.
In fact, as environmental matters require shared actions and common intents, a general acceptance of and a broad agreement on environmental policies and strategies, such as the new EU CBAM, are crucial to obtain tangible impacts on the actual climate crisis. The current scenario of environmental degradation requires joint efforts from the international community and the debate upon environmental strategies affecting commercial flows, such as the EU CBAM, is crucial, also owing to the actual climate of uncertainty caused by the announcement of widespread US tariffs.
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