A recent Wood Mackenzie Horizons report sheds light on the anticipated effects of the European Union’s Carbon Border Adjustment Mechanism (CBAM), a policy set to impose emissions levies on imported goods, significantly impacting various sectors and global trade dynamics.
The report, titled “Playing by new rules: how the CBAM will change the world,” delves into the ramifications on oil, steel, and hydrogen value chains, providing insights into potential shifts in trade and its impact on EU consumers.
Global Implications of CBAM on Trade Dynamics and Competition
The report emphasizes that the EU’s CBAM will reverberate globally, presenting a competitive advantage to countries already implementing carbon pricing or dealing in less carbon-intensive commodities. Elena Belletti, Global Head of Carbon Research at Wood Mackenzie, emphasizes that this policy will drive the world closer to decarbonization, potentially reshuffling trade flows over a decade.
Steel Industry Faces Significant Impact
The steel industry is anticipated to be among the first and most affected sectors due to the CBAM, as it accounts for a substantial portion of total emissions within the EU. Producers, both domestic and foreign, will face pressure to invest in low-emission technologies, such as carbon capture, hydrogen, and enhanced energy efficiency. The report estimates substantial cost increases for steel imports, particularly from major exporters like China and India.
Hydrogen Market Opportunities and Challenges
The CBAM is expected to stimulate imports of low-carbon hydrogen and its derivatives, promoting growth in the low-carbon hydrogen market. The report anticipates increased demand for low-carbon hydrogen in sectors such as ammonia and fertilizers, shifting the market dynamics toward more sustainable production methods.
Oils Value Chain to Witness CBAM Effects
While not initially included, the oils value chain is expected to be encompassed by the CBAM by 2036. Countries with reserves of less carbon-intensive oil and gas, including the US and Middle Eastern nations, are predicted to benefit from this policy. However, consumers in the EU may experience price hikes for oil and gas products.
The Wood Mackenzie report underscores the significance of strategic planning by businesses and governments to navigate the evolving landscape, minimize carbon costs, and capitalize on emerging opportunities amidst the changing dynamics due to the CBAM.