Abstracts
EU Carbon Border Adjustment Mechanism (CBAM) has become official law in May 2023, the EU's CBAM will fulfill reporting obligations from October 1, 2023. Moreover, it will start up funding obligations officially in January 2026. The EU's CBAM has profound impact on the global economy and trade. In the long-term perspective, the impact on Latin American exports to the EU will deepen as the coverage of carbon allowance which has continuous expansion. However, the influence on the output of core industries of the economy is the result of multifarious considerations. The predictable scenario is that low-carbon and sustainable development may become the spotlight in Latin America.
Facing Challenges
The carbon emission accounting follows the principle of ‘direct carbon emissions and indirect carbon emissions under certain conditions. What's more, the carbon emission method is also taken into consideration. At present, the carbon tariff covers basic heavy industry categories thoroughly, which includes steel, aluminum, electricity, cement, fertilizer and hydrogen. It is competitive to gain market shares of high quality and inexpensive products. The price of exporting products in Latin America has increased with the implementation of the carbon tariff. Price escalation directly leads to a decrease in the price competitiveness of goods. Furthermore, the high-carbon emission industries may be more deeply affected. Now, there is a financial gap in grid investment in Latin America which includes market congestion, supply chain slowdowns and permitting issues. Although Latin America has advantages in producing green hydrogen energy, the problems with small domestic markets and high transportation costs of pure hydrogen are still rigorous. Derivatives of hydrogen products are the spotlight in the international trade, and carbon tariffs enhance the prices of related products. When the EU's CBAM has not officially in operation, many countries in Latin America have conducted energy transformation as the core national sustainable development strategic. In reality, many countries in Latin America are still developing countries. They face huge challenges in both capital investment and technological research progression. In addition, upgrading energy sources and using renewable resources require long range planning, which makes it difficult to realize qualitative leaps within a short period of time. Changes in the international situation tend to increase external pressure on emission reduction work in Latin America, which will affect the strategic layout of energy conservation and emission reduction in Latin America. Enterprises are the main participants in international trade, and the carbon tariffs adversely affect Latin American enterprises which tend to explore international markets. Markets and public policy are closely linked, carbon tariffs guide the masses to focus on carbon emissions and energy. Low-carbon manufacturing and green development concepts have received more attention. As the market demand for green and low-carbon increases, brand building in Latin America needs to incorporate innovative and environmentally friendly concepts. If one type of product has negative news, the pressure of external public opinion will have unpleasant influence on the brand's image and lead to the reduction of export rate of goods.
Greeting Opportunities
The international perspective shows that because of the intensive development of economic globalization and profound changes in the international landscape, the EU's CBAM is an international event that has attracted immense global attention. As an important part of the world, the governments of Latin America continue to promote international cooperation and actively participate in global climate governance to work with the international community to combat climate change and maximize their own development. The regional perspective shows that Latin America has the richest solar and wind energy resources in the world, and its unique natural conditions provide a solid foundation for its energy transition. In this regard, governments have stewardship of national energy transition. Due to the inadequate government regulation and limited investment capital, the progress on clean energy in Latin America has fallen far below expectations in the past, and now comes the turnaround. Carbon tariffs are based on the number of pollutants emitted during the product manufacturing processes. As a result, the use of clean energy can effectively reduce the number of pollutants in order to lower the number of tariffs levied. To promote the development of international trade of Latin American enterprises, it is urgent for the government to optimize the structure of trade and industry. Improving regulation can provide quality assurance for the export of goods overseas. As the main participant in international trade, it is crucial for enterprises to learn to be flexible in the new rules of international trade. Enterprises in Latin America can reduce compliance risks by strengthening their compliance foundation and regularly publicizing reports on carbon tariffs and other related issues which can be better integrated into the global ecosystem. At the same time, companies are trying to reduce the cost of exporting goods and increase price competitiveness. It is vital for enterprises to focus on the development of clean energy and the transformation of green and low-carbon emissions that contribute to sustainable development.
Taking Measures
Firstly, the feedstock deficit forces energy producers to search for new supply regions, and they focus on Latin America as the main source of renewable energy feedstock. Latin America is attractive to foreign investors because of its inexpensive and abundant raw materials, multiple FTAs, and proximity to production facilities. It has gained a good reputation from its international cooperative partners. Low-carbon emission reduction and energy transition missions are being vigorously pursued in Latin America, particularly in the green hydrogen track, which is a strong contender for the summit, and among others, due to the most attractive cost per unit of hydrogen (LCOH) and regulatory framework, Chile punches above the weight. Secondly, governments in Latin America have responsibility to enact relevant policies to support the development of renewable energy and environmental industries and improving the legal and regulatory system of carbon tax in Latin America. Latin American countries actively analyze the current international situation and improve the relevant laws and regulations on carbon tax through legislation, which can accelerate the transformation and upgrading of local enterprises, so they can reduce carbon emissions. That is the way to protect local enterprises from the suppression of the EU and other developed countries. Last but not least, enterprises appropriately phase out high-energy but low-yield products through technological innovation and enhance energy efficiency and Green Total Factor Productivity (GTFP)to provide higher quality products and services to the international market.
China-Latin America Cooperation
China and Latin America are solid bilateral partnership with fruitful cooperation in many fields. With ample natural resources, Latin America becomes prosperous in global renewable energy development. But it is obvious that there is a gap in Latin America's annual investment in renewable energy, and China has strong financial strength in this track, which can fill the gap in funding shortfalls. Under the Belt and Road Initiative, both China and Latin America adhere to the win-win principle and try to broaden the scope of collaboration. China-Latin America cooperation has a long history, and cooperation is deeper in the areas of technology and emerging industries at present. China and Latin America will respond to climate change in the same place and promote the building of a community with a shared future for mankind. Under the Carbon Peaking and Carbon Neutrality Goals, there will be more opportunities for cooperation between the two sides.
References
http://china.cnr.cn/gdgg/20231016/t20231016_526453041.shtml https://baijiahao.baidu.com/s?id=1777458837061537834&wfr=spider&for=pc https://baijiahao.baidu.com/s?id=1779172406717034474&wfr=spider&for=pc http://news.10jqka.com.cn/20231022/c651468554.shtml https://m.eeo.com.cn/2023/1028/611098.shtml https://doi.org/10.16511/j.cnki.qhdxxb.2023.26.050.
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