Abstract
Climate change has become an essential item in the global development agenda. As a result, many countries have started to elaborate and adopt trade measures to reduce climate change risk. For example, on July 14, 2021, European Commission introduced a legislative proposal for a Carbon Border Adjustment Mechanism (CBAM). Under this mechanism, imports of certain products to the EU will be subject to a special fee based on the carbon intensity of the supplied products. CBAM will affect many EU’s partners, including members of the Eurasian Economic Union (EAEU). Estimates show that CBAM may affect up to 58% of EAEU’s exports to the EU, with Russia most affected. This chapter is devoted to analyzing the current CBAM proposal and analysis of its effects on the Russian economy. It is concluded that payments for Russian exports to the EU under CBAM are estimated to vary between 94,3 bln euro and 174,1 bln euro during 2026–2035, depending on CBAM parameters and CBAM pass-through rate to prices.
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Notes
- 1.
Legislative proposals.
- 2.
Defined as the ratio of the increase in GHG emissions outside countries with climate regulations to the amount of emission reductions inside countries with climate regulations.
- 3.
Authors use the term CBAM, but it is different from the EC’s CBAM proposal made in July 2021.
- 4.
Probably because of possible violation of WTO’s most-favored-nation (MFN) principle.
- 5.
The list of these sectors is available in Commission Delegated Decision (EU) 2019/708 of 15 February, 2019.
- 6.
Analysis was conducted on the basis of import statistics (e.g., the share of EU in exports of certain EAEU member-state was calculated as the ratio between imports from such state to EU and the World) during December 2021 - January 2022.
- 7.
EU is also a key export destination for Kazakhstan that exports mainly oil to EU.
- 8.
We do not set a price ceiling for EUA (CBAM rate) in our calculations. However, it may be limited to price of carbon that is needed to encourage the switch to “green products.”
- 9.
For product groups where carbon intensity based on scope 1 emissions equals to carbon intensity on scope 1 and 2 emissions no data was found on scope 2 emissions.
- 10.
E.g., Ecofys prepared several research papers at the request of the European Commission.
- 11.
Many countries may want to avoid payments under the EU CBAM, and there is a high chance that they will adopt domestic carbon pricing regulations mirroring the dynamics of EUA price and covering those sectors and products that fall under EU’s CBAM. To protect the competitiveness of domestic firms countries will adopt their own BCAs reflecting the parameters of domestic regulation (that is tied to EU CBAM). Therefore, it is assumed that BCA parameters of the other countries will be close to the European CBAM. It is oversimplified assumption and in practice BCAs of other countries may differ in part of affected products and rates to be paid. Also trade reorientation requires construction of CGE model which can be difficult taking into account data limitations of this research.
- 12.
We also indirectly assume that Russian companies involved in export operations maximized their profits on the domestic market so that they do not reorient their export to domestic market.
- 13.
As mentioned earlier these estimates are based on assumption that EUA price does not have a ceiling. If we assume that EUA price ceiling is 170 euro per ton of CO2e (that is believed to be a price to reach EU 2030 emission reduction targets), and it will be reached in 2030 (i.e. CBAM rate remains at 170 euro per ton of CO2e after 2030) then our estimates of payments would vary between 88.3 bln euros and 159.4 bln euros over the period from 2026 to 2035.
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Lazaryan, S., Sudakov, S. (2023). Impact of EU’s CBAM on EAEU Countries: The Case of Russia. In: Devezas, T.C., Leitão, J.C.C., Yegorov, Y., Chistilin, D. (eds) Global Challenges of Climate Change, Vol.2. World-Systems Evolution and Global Futures. Springer, Cham. https://doi.org/10.1007/978-3-031-16477-4_9
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