In the initial phase, the CBAM will focus on commodities with the highest risk of carbon leakage, namely cement, iron and steel, aluminum, fertilizers, hydrogen, and electricity.

The new policy tool of the EU

For many years, the EU has been Vietnam's fourth-largest two-way trading partner after China, the US, and South Korea. Vietnam is the EU's 15th-largest merchandise trading partner and the most prominent trading partner in ASEAN. According to the Vietnam Steel Association, in the first six months of 2023, Vietnam's merchandise trade surplus to the EU was estimated at US$14.5 billion, a 9.8% decrease compared to the same period last year. However, steel exports alone in the first half of 2023 reached around 1.36 million tons, with an export turnover of about US$1 billion, a 1.5-fold increase from the same period in 2022 and a slight decrease in export value.

Starting from October 1, 2023, the EU's Carbon Border Adjustment Mechanism (CBAM) - a new policy tool of the EU that allows for additional taxation on imported goods with high emissions - begins its transitional phase. Among the first groups of commodities to be affected are steel, cement, aluminum, fertilizers, hydrogen, and electricity.

The full implementation of the CBAM is expected to start from late 2026, when importers of goods falling under the adjustment scope will be required to purchase certification papers for the CBAM and declare the quantity of goods as well as the associated emissions within the imported goods into the EU.

Nghiem Xuan Da, Chairman of the Vietnam Steel Association, stated that the Vietnamese Government has actively engaged in international cooperation activities to address climate change and has made efforts to reduce greenhouse gas emissions. Vietnam has also identified the forthcoming carbon pricing tool as a domestic carbon market through the application of emission quotas for major emission sources.

Green production is an inevitable trend

Le Huyen Nga, Deputy Director of the Multilateral Trade Policy Department, Ministry of Industry and Trade, provided information about the concepts and levels of danger and consequences of carbon leakage that the world is facing. Therefore, the CBAM is a necessary mechanism, especially for the steel industry, which is considered to have many environmentally harmful risks.

In the long run, green production is a common and essential trend worldwide, not only within the EU. Other markets will also apply strict environmental protection and health safeguard policies for imported products. Vietnamese steel enterprises must have a renewed production direction and process to align with the trend of stable and sustainable development in the future. The EU's CBAM is one of the necessary and sufficient conditions.

According to the leadership of South Korea's Posco, the CBAM has a significant impact on the steel industry. To cope with these regulations, Posco is aiming for carbon neutrality by 2050. In the process to achieve this goal, from now until 2040, Posco plans to reduce carbon emissions by 50%. This is a complex challenge. To achieve this, Posco's leadership stated that they were exploring an advanced technique, which involved producing steel without carbon and replacing it with hydrogen.

The leadership of this conglomerate also noted that they had a clear roadmap for implementing the CBAM, but there are still some unclear issues regarding the mechanism. "Last year, I visited the EU five times to discuss this issue. The EU also acknowledges some related issues about the mechanism. However, they are still firm with the roadmap, and steel enterprises, including those in Vietnam, must follow a reporting regime. If the information is inaccurate, fines will be imposed," Posco's leadership informed, adding that this will be a trade barrier for the steel industry, requiring collective voices from steel enterprises to navigate further and respond to the CBAM.

Da said that the Vietnamese steel industry and steel enterprises continued to collaborate with ministries, international organizations, and industry associations to take actions to meet the CBAM requirements. They are also conducting studies to assess the impact on Vietnam for steel industries with high carbon leakage risks according to the EU's list. Do researching solutions and deployment strategies to balance the gradual reduction of carbon emissions for all industries to ensure competitiveness with the world.