Chinanews.com, Dubai, December 12 (Reporter Pang Wuji, Zhang Nan) In October this year, the transition phase of the EU's carbon border adjustment mechanism (CBAM) came into effect. During the transition period, exporters to the EU will only need to report information on a quarterly basis and will not have to pay the actual carbon tariff. However, from January 6, 10, carbon tariffs will be officially imposed on products imported into the EU. Chinese companies in six industries, including power, cement, fertiliser, steel, aluminium and hydrogen, are facing the EU's new CBAM compliance requirements.
Recently, the EU's "carbon tariff" sparked fierce debate during the 28th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP<>). Many countries have accused the EU of this move as a unilateral and coercive measure to restrict international trade in disguise.
In an exclusive interview with Chinanews.com during COP28, PwC China Tax Policy Services Leader Ma Long said that the implementation of the CBAM will bring many challenges to Chinese producers exporting to the EU.
"Chinese companies need to do something."
Ma Long said that Chinese companies should first pay attention to the accurate measurement and collection of their own carbon emission data and information. Relevant enterprises should establish and improve their own carbon emission accounting system as soon as possible, first, it can be used to measure carbon emissions under the framework of laws and regulations and assess their CBAM costs; Second, it can accurately track its carbon footprint and improve its carbon management procedures. Through accurate data collection and data retention, it is also beneficial for enterprises to self-prove the accuracy and rationality of their accounting data in the face of audit or spot checks by relevant departments, and obtain certification from relevant EU certification bodies.
At the same time, he suggested that enterprises should fully understand the relevant provisions of the CBAM Act and the detailed rules of the transition period, and clarify their compliance obligations.
In addition, companies also need to pay attention to the interoperability between the domestic carbon emission monitoring system and the EU CBAM regulations. The CBAM allows third-country producers to use data from their own carbon monitoring systems until 2025. However, from 2025, producers' carbon emission testing methods must be certified by an EU accreditation body. In the absence of certified data, all products are required to declare their carbon emissions in accordance with the default carbon emissions set by the European Union, which is generally higher and very disadvantageous for exporters. If Chinese producers use high-end emission reduction technologies to achieve efficient emission reduction results in the production process, but are unable to obtain certification of actual carbon emissions, the high carbon tariffs on their products will be particularly disadvantaged.
"How do Chinese companies break through?"
For companies going to the EU, Malone gives four suggestions:
The first is to upgrade low-carbon technologies and seek technological transformation. The formal imposition of carbon tariffs could put additional cost pressure on Chinese companies to invest abroad, weakening the competitiveness of China's exports to the EU. Chinese manufacturers should accelerate the exploration and upgrading of their low-carbon technologies to achieve efficient emission reduction, so as to break through the restrictions imposed on their own business by carbon tariffs. In addition, companies may also consider value chain transformation to minimise potential negative impacts.
The second is to grasp the transition period and simulate the impact of formal taxation. We should pay close attention to summarizing past data, predicting future trends, and simulating and evaluating the possible specific impact of EU carbon tariffs in combination with our own positioning and development strategy, so as to prepare in advance for the formal implementation of the CBAM.
The third is to take precautions and pay close attention to the further expansion of the scope of application of the CBAM. The CBAM currently only covers products from six sectors. However, the EU plans to gradually expand the product scope to all products covered by the EU ETS by 6, so as to finally unify the product scope of the CBAM with the EU's current Emission Trade Scheme (ETS). Therefore, companies in China's high-emitting industries should start to pay attention to the scope of carbon tariffs and their impact on themselves, and take corresponding measures to address the challenges.
Fourth, strengthen multi-party cooperation with relevant departments at home and abroad. Based on the basic principles of the WTO, consolidating and strengthening global industrial and supply chain cooperation is the interests and urgent expectations of all parties, and Chinese enterprises should take the CBAM as an opportunity to strengthen communication, deepen cooperation and seek common development. (ENDS)