In June of this year, the European Parliament approved the Carbon Border Adjustment Mechanism (CBAM), which will tax imported goods with a high environmental footprint. The measure, which will come into force gradually from January 1, 2023, will initially affect exports of a group of carbon-intensive products such as iron, steel, cement and fertilizers, and will be extended to others such as wood, paper and food.

Although it is subject to review by the World Trade Organization (WTO), the CBAM is part of the commitments assumed by the countries of the European Union to reduce their greenhouse gas (GHG) emissions by 55% by 2030 based on the year 1990 and reach carbon neutrality by 2050.

Its implementation seeks to avoid a phenomenon known as “carbon leakage”, which occurs when companies outsource or transfer their production to countries with less demanding environmental regulations and controls, and end up importing those goods produced at a lower cost but with a high environmental footprint. This means that “today developed countries consume more greenhouse gas emissions than they produce,” says Mariana Conte Grand, senior economist at the World Bank.

Currently, “carbon border taxes do not imply a significant threat to Argentine exports since they affect industrial goods that are not so relevant in our foreign trade. However, the impact will be greater in the future when agricultural goods are incorporated, and even more so if instead of direct emissions those of the entire product chain are considered”, the economist assesses.

Putting it in numbers, “Argentina’s exports to the European Union represent close to 15% of the total. And although this percentage does not seem significant, 50% of what is exported to Europe are food products, mostly classified as “sensitive” due to their high carbon footprint; Mainly meat, leather and wine”, points out Vanesa D’ Elia, professor of Economics at Ucema and co-author of a paper on “the impact of carbon leakage on Argentine exports”.

The Carbon Border Adjustment Mechanism (CBAM) responds to the European Green Deal (Green Deal), which was launched in 2021 to promote a sustainable post-pandemic economic recovery and meet climate objectives based on the reduction of greenhouse gas emissions. greenhouse.

The system works in two ways: through a tax or fee; or from the obligation to pay permits or buy carbon emission reduction certificates in countries that have regulated carbon markets.

In practice, “EU importers will buy carbon (reduction) certificates corresponding to the price that would have been paid if the products had been produced according to EU standards. But if a non-community producer can demonstrate that they have already paid a price for the carbon used in the production of the goods, the corresponding cost can be deducted for the European importer”, details Alejandro Diz Ramos, consultant in Environmental Economics at SMS South America.

Regarding its implementation, the CBAM will advance gradually: “As of 2023, a simplified system will be applied to the selected products, in which importers will have to notify the emissions incorporated into their products without paying a financial adjustment. Once the system is fully operational in 2026, EU importers will have to declare annually the amount of emissions embodied in the total goods they imported into the EU in the previous year, and purchase the corresponding number of certificates.

Green protectionism

Increasingly, Climate Change mitigation policies translate into measures that impact trade. “Whether to reduce asymmetries in regulations or due to pressure from some sectors that fear losing competitiveness at the hands of players who do not apply strict climate regulations, environmental requirements are growing,” says Consuelo Bilbao, specialist in Environmental Communication and director of the Círculo de Environmental Policies.

“Some argue that these practices are inconsistent with the multilateral trade system and that they function as disguised restrictions on international trade,” admits the economist and teacher D’Elía.

The truth is that carbon taxes and border adjustment mechanisms are not the only tools to prevent trade in unsustainably produced goods.

In September of this year, the European Parliament advanced another regulation that obliges companies to verify that the products that enter the EU have “deforestation-free” certifications. This mainly affects exports of meat, coffee, soybean oil, palm oil, wood and derivatives such as paper, furniture, wine, leather and other agri-food products. Brazil was the first country penalized under this measure, when it was found that its soybean exports came from deforested areas of the Amazon.

“Environmental and social certifications and labels: forest care, carbon footprint, water footprint, energy efficiency, and traceability of products to ensure fair working conditions and respect for Human Rights, are for now mostly voluntary. , but they will begin to be required to the extent that consumers are increasingly informed and aware of the environmental impact of their consumption,” says Bilbao.

And the European Union is not the only block that is applying these demands. “There are similar proposals or at least discussions in the United States, the United Kingdom, Japan and Canada,” says Conte Grand, from the World Bank.

From barriers to opportunities

Given the growing demands for sustainability in international markets, “Argentina has enormous potential, due to its technical and professional capacity added to the phytosanitary information of its export products, to which it can add environmental information,” says Diz Ramos.

“The key is to have a proactive State policy and not wait for tariff or para-tariff restrictions to surprise us. It is difficult for us to compete in the world if we do not have environmental regulations or do not comply with them”, points out the SMS Latin America consultant. This firm has just launched the Sigra platform (Environmental Risk Management System), so that companies and the public sector can measure, manage and report the carbon and water footprint, the generation of waste and other environmental incidents. The risk of not having their own regulations and standards for measuring environmental impact is having to use those determined in the countries of destination.

“It is argued that the rules for determining the environmental footprint analyzed by the European Union are not based on an agreed definition that contemplates the characteristics of the productive systems and value chains of developing countries, but rather follow unilaterally established criteria” warns D’Elia. Hence the importance of “companies getting involved in the design and implementation of ecolabels, and that the State supports them by providing the necessary information and tools,” he proposes.

The requirements for certifications and traceability of export products is a growing trend.

In this framework, what appear to be protectionist obstacles can be seen as opportunities to differentiate themselves in the international market, with products that do not compete based on price, but rather on quality and compliance with high social and environmental standards.

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