In the context of the global effort to combat climate change, the European Union (EU) has implemented the Carbon Border Adjustment Mechanism (CBAM) to prevent carbon leakage and promote green production. Notably, after four years of implementing the Vietnam-EU Free Trade Agreement (EVFTA), the EU has become Vietnam's fourth-largest trading partner. In this context, understanding and complying with CBAM regulations is not only a mandatory condition but also a key to enable Vietnamese businesses to maintain their competitive edge and tap into their export potential.

 

What is CBAM?

CBAM (short for Carbon Border Adjustment Mechanism) is a carbon border adjustment mechanism - a tool implemented by the European Union (EU) to mitigate carbon risks associated with imported goods from countries that have not adopted stringent climate standards. In other words, CBAM was enacted by the EU as a policy to prevent carbon leakage concerning goods imported into the EU market, based on the emission intensity of the production processes in the exporting country.

 

What is CBAM

 

CBAM, an acronym for Carbon Border Adjustment Mechanism, is a tool deployed by the European Union (EU) to mitigate carbon-related risks associated with imported goods from countries that have not adopted strict climate standards. In other words, CBAM is enacted by the EU as a policy to prevent carbon leakage concerning imported goods into the EU market, based on the emission intensity during the production process in the exporting country.

 

How important is CBAM?

CBAM plays a crucial role in guiding nations and businesses towards a sustainable economy:

 

Ensuring a level playing field

CBAM protects EU enterprises from unfair competition posed by countries that have yet to implement equivalent emission reduction measures. This helps maintain a balance in production costs, ensuring competitiveness.

 

Encouraging the development of a green economy

The CBAM mechanism exerts pressure on importing countries into the EU to adopt emission reduction strategies, such as utilizing renewable energy and energy-efficient technologies, thereby contributing to the establishment of a greener economy.

 

How important is CBAM?

 

Promoting the growth of the carbon market

CBAM stimulates investment in renewable energy projects and clean technologies, while also fostering the expansion of the carbon market, contributing to sustainable development goals.

 

Supporting greenhouse gas emission reduction targets

The CBAM mechanism also plays a vital role in fulfilling international climate commitments, particularly the Paris Agreement, thereby aiding efforts to mitigate the impacts of climate change.

 

Guiding technological transformation in production

CBAM encourages industries to innovate technologically, utilize energy efficiently, and reduce emissions, which in turn minimizes costs associated with this mechanism and enhances production efficiency.

 

CBAM encourages industries to innovate technology

 

The impact of CBAM on Vietnamese enterprises

The carbon border adjustment mechanism (CBAM) of the European Union (EU) has significant implications for Vietnamese businesses, especially those exporting goods to this market. Specifically, how does CBAM affect Vietnamese companies?

 

Increased production and export costs

CBAM may impose taxes or require the purchase of carbon credits for products imported into the EU. This will result in increased production and export costs for Vietnamese enterprises, particularly in industries with high carbon emissions, such as cement production, steel, wood processing, and energy-intensive manufacturing.

 

Pressure to enhance energy efficiency and reduce emissions

To mitigate the impacts of CBAM, enterprises must invest in clean technologies, modernize production processes, and utilize renewable energy. This represents a considerable challenge, necessitating swift adaptation by businesses seeking to conserve operational costs and enhance competitiveness in the market.

Pressure to enhance energy efficiency and reduce emissions

 

Demand for carbon certification standards

CBAM also mandates transparency in verifying the carbon emissions of products. Consequently, Vietnamese businesses need to establish rigorous carbon emission management and reporting systems that comply with international standards.

 

Risk of losing export market share

Failure to timely adapt or meet emission reduction standards may lead to Vietnamese products being subjected to higher carbon taxes, hindering competitiveness against local products with comparable prices but lower carbon emissions within the EU. This risks diminishing competitiveness and potentially losing access to vital export markets.

 

Opportunities to promote a green industry

CBAM can serve as a catalyst for businesses to transition towards sustainable production, utilize renewable energy, and implement energy-saving technologies. This presents an opportunity for enterprises pioneers in the clean industry sector to enhance their position in the international market and promote a green economy in Vietnam.

 

CBAM can motivate businesses to transition to sustainable production

 

Implementation roadmap for CBAM

The implementation of CBAM comprises three phases:

 

Transition phase

From October 1, 2023, to the end of December 2025, is the transition phase for CBAM. During this period, importers in the EU must submit quarterly reports on greenhouse gas emissions from imported products within 30 days following the end of each quarter. The first report is to be submitted by January 31, 2024.

According to regulations, affected items during this phase include iron and steel, aluminum, electricity, cement, fertilizers, and hydrogen—accounting for up to 94% of the industrial emissions in the EU. By the end of 2025, the European Commission (EC) will evaluate CBAM's effectiveness and may broaden its application to other products and services.

 

Operational phase

The period from 2026 to 2034 marks a significant shift when CBAM officially comes into operation. During this phase, EU importers must purchase CBAM certificates to offset carbon emissions from imported goods. By May 31 of each year, importers need to declare the volume of goods and integrated emissions from the previous year’s imports and submit the corresponding CBAM certificates.

Additionally, the EU will gradually eliminate the free allocation of greenhouse gas emission allowances. Exporting companies may purchase CBAM certifications from designated authorities in their respective EU member countries, with the certification cost based on the average weekly price of the EU ETS system (currently ranging from €80-100 per ton of equivalent carbon).

 

Full operational phase

Starting in 2034, CBAM will enter its full operational phase. During this phase, manufacturers and enterprises will no longer receive free CO2 emission allowances and will be responsible for bearing all costs related to CBAM pertaining to their production emissions.
 

Steps to comply with CBAM

• Determine the applicability of CBAM: Conduct a thorough assessment to confirm whether products are subjected to CBAM regulations. 

• Collect and analyze data: Gather and analyze information on carbon emissions generated during production processes. 

• Establish a dedicated team: Consider forming a specialized team to manage CBAM-related information more efficiently. 

• Ensure accuracy and timeliness: Provide complete and timely necessary data as required for EU importers. 

• Prioritize information quality: Focus on transparency and accuracy when sharing CBAM-related data, particularly during the transition phase.

 

Conclusion

The above outlines our comprehensive insights on CBAM and its impacts on Vietnamese enterprises. Are you an exporter to the EU market? Do you aspire to develop a sustainable growth trajectory by preparing for the stringent demands of the international market? The CBAM course at Minmax Green would be the perfect choice for your enterprise at this juncture!

By participating in the CBAM course, you will gain a holistic view and acquire in-depth knowledge about the Carbon Border Adjustment Mechanism (CBAM). Moreover, you will learn how to prepare transparent reports and devise cost-optimization strategies, all while readying your enterprise for a sustainable growth journey. For further information, please contact Minmax Green via the website https://minmaxgreen.vn/ or the hotline 0931 861 313.