Industry Focus >>3 Min. to Understand EU's CBAM
3分鐘了解歐盟碳稅重點by Gang Hao Chang, Vice Editor-in-Chief of Fastener World

What is the EU Carbon Border Adjustment Mechanism (CBAM)?

The Latest Revision of the EU'sCarbon Tax Policy
Initially, the CBAM covered only iron & steel,cement, aluminum, fertilizer, electricity, and hydrogen,but after a meeting of EU parliamentary members at theend of 2022, the scope was extended to include steelrelated downstream products (i.e., steel screws andbolts will also be covered), with the goal of reducingEU carbon emissions by 55% before 2030 compared tothe 1990 level. This will have a major impact on many
countries around the world that export a lot of products
to the EU and do not yet have a well-developed
domestic carbon emissions mechanism or regulation.

Why is There a Carbon Tax?
The concept of carbon rights can be traced back to2005, when the EU started to impose a carbon fee on
carbon emitting companies within the EU, but the samemeasure was not applied to those outside the EU who

imported goods and services into the EU. This is why the CBAM, theworld's first carbon border adjustment mechanism, was created, with thegoal of discouraging the export of cheaper and more competitive products to Europe from countries that do not yet have complete environmental control policies. The objective of CBAM is to discourage the export ofcheaper and more competitive products from countries that do not havecomplete environmental control policies to Europe to cause damages tothe local industry. Although the EU has issued free carbon permits to domestic companies at this stage, the program will be gradually phased out
after the implementation of the carbon tariff to meet WTO requirements.

The U.S. will Also Impose a Carbon Tax
Not to be outdone by the EU, the U.S. has also announced plans toimpose a carbon tax by 2024, much earlier than the EU's 2027. By then,no matter whether the products are made in the U.S. or imported fromabroad, as long as their carbon content is below the required baseline,
they will not be subject to the tax; conversely, if they exceed the baseline,
a carbon tax of US$55 per ton will be levied. And, the plan extends todownstream products after 2026, as long as they reach a certain carbon
content, they will also be subject to the carbon tax.

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As the world's second largest commodity market, the EU has announced that it will implement the Carbon Border Adjustment
Mechanism (CBAM) on a trial basis from October 1, 2023, whereby companies importing related products into the EU will
be required to declare their carbon emissions. On the other hand, they will also be required to purchase the so-called CBAM
certificates from the EU to pay for the carbon emissions of imported products, which will be formally implemented in 2027.

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Industry Focus >>Many analysts also believe that in order to obtain a level playing field, China, Japan, South Korea and other countries may also
implement their own carbon tax measures in the future.

What are the Standards for Companies
to Conduct Carbon Inventory and Carbon Footprint?
The ISO 14064 standard was developed by the International
Organization for Standardization (ISO) as the basis forinternal carbon inventory and verification methods. The otherISO 14067 is mainly used to measure the carbon footprint ofa company, focusing on the total direct and indirect carbon
emissions throughout the “life cycle” of the goods and services
produced by the company. ISO 14064 focuses on the “carboninventory” within a company, while ISO 14067 focuses on the“carbon footprint” tracking outside the company.

Possible Impacts on Businesses

Hardware & Fastener Components - no.57/2023

China, for example, is one of the world’s largest carbon
emitters, with a total export value of over 380 billion Euros to theEU in 2020. Some experts believe that once the EU carbon tax isimplemented, it will increase the cost of carbon tax for China’s
steel, aluminum, fertilizer, cement and other industries, and thecost of carbon tax will reach 17%, 20%, 17% and 31% of theexport value respectively. According to Goldman Sachs Group’s
calculations, after the carbon tax is formally implemented, China’s

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exports to the EU are estimated to be subject to an annual carbon
border adjustment tax of up to US$35 billion (roughly 7.7% ofChina’s total exports to the EU), which will be a considerable
cost burden for many Chinese companies that are mainly focusedon export.
Moreover, since many enterprises in Europe and the UnitedStates started earlier in carbon emission control, if the carbon tax
measures in Europe and the United States are formally in place,other enterprises with particularly high carbon emissions will obviously lose their competitiveness.

What Can Companies Do to Respond toThis Trend?
The carbon tax is a current trend in the global industry to pursue a win-win situation for both the environment and corporate
sustainable development. Companies that focus on exportingto Europe and the U.S. will be the first to be affected. In viewof this, enterprises should not only passively review whether
they have the ability to monitor carbon efficiency and implement corresponding calculations and reports. They should also
take the initiative to strengthen their manufacturing technology
transformation (e.g., the introduction of more energy-efficientequipment and device) and invest more in R&D transformationthat emphasizes low carbon emissions (e.g., use of green energy
or adoption of low carbon emission materials) in order to gain themost advantageous competitive edge in the upcoming carbon tax
challenge.