South Korean exporters are bracing for a significant surge in carbon-related expenses within the European Union, starting in 2031. This increase stems from the EU’s planned phase-out of free emissions allowances and the strengthening of its Carbon Border Adjustment Mechanism (CBAM), according to a recent report released on Monday.
The study, conducted by the Korea International Trade Association (KITA), highlights that the financial impact of CBAM is projected to escalate considerably after 2030. This is due to the EU’s initiative to substantially reduce free allowances under its emissions trading system (ETS).
Since January 1st, the EU has implemented a carbon tax on imports from carbon-intensive industries, including steel, aluminum, cement, and fertilizers. The bloc intends to broaden the scope of CBAM in 2028 to encompass additional products such as machinery, electronic equipment, and medical instruments, pending approval from the European Parliament.
The CBAM framework necessitates that companies exporting to the EU calculate the carbon emissions associated with their products and provide this information to importers. Importers are then required to purchase CBAM certificates proportional to these emissions.
While CBAM is already in effect, its true economic impact is expected to intensify as free emissions allowances are progressively eliminated. Products currently benefiting from EU’s free emission allowances are slated to decrease from 97.5 percent in the current year to zero by 2034. The report indicates that by 2031, the rate will drop below 40 percent, leading exporters to shoulder a considerably larger portion of carbon costs.
KITA’s analysis suggests that a 1 percent increase in export prices attributable to CBAM-related costs could result in a 0.98 percent decrease in export volumes.
Looking ahead, shipments of CBAM-covered products to the EU are projected to decline between 0.9 percent and 5.3 percent through 2030. This decline is anticipated to become more pronounced, ranging from 7.7 percent to 17.9 percent, between 2031 and 2034. This intensification is linked to the reduction in free credits and the increased burden of paid carbon allowances.
“As the scope of CBAM widens starting in 2028 and the tangible impact of carbon costs begins in 2031, Korean companies have limited time to prepare,” stated Lee Kwanjae, a senior researcher at KITA. “To sustain export competitiveness, it is crucial for companies to finalize their transition to low-carbon facilities and establish proactive supply chain management systems by 2030.”
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