I am sure most of you have been paying attention to what the US and EU have been agreeing on whilst negotiating a trade deal with a 15% tariff agreed. This is fine for now as the 15% basically removes the VAT as exported goods are exempt and then the VAT can be applied so it kind of nullifies the tariff.
This all changes come January when the Carbon Border Adjustment Mechanism goes live so I see bigger problems in 5 months time. Goods imported or exported out of the EU will be subject to this new tax depending on the carbon footprint of that particular product. CBAM was introduced to protect the EU industries from cheaper imports who were not adhering to the carbon taxes using cheaper dirty energy sources during manufacturing.
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The first batch of products being effected by CBAM are cement, fertilizers, aluminium, iron and steel, hydrogen and electricity. Other sectors will be added in a roll out over the course of 2026.
We know the EU and US signed a 3 year deal with the EU guaranteeing $750 billion energy purchases. Aircraft and components were exempt, semi conductors and specific chemicals and agricultural products. My question is what impact will CBAM have on this deal as aircraft and energy will be subject to carbon taxes. This could quite easily add significant taxes over and above the 15% trade deal and i would find it very unlikely this part was even discussed.
Just to give you an idea the costs involved the average price per carbon ton since Mat 2025 is €70.38 per carbon emissions known as EU ETS which is European Union Emissions Trading System. If you were importing a product that had required 1000 tons of carbon emissions embedded in the production and delivery then the tax would be €70,380. There are no exceptions and will eventually adhere to all products imported and exported.
Depending on who is paying for this whether it is importer or exporter one has to pay for the EU ETS certificate before the goods can be cleared. Countries like India and China are in serious trouble as they have not even tabled a plan as yet how to handle this extra cost. The so called cheap aluminium that the Chinese flood the international markets with will be no longer due to the carbon emissions embedded in this production. Countries like the United Arab Emirates could easily become the main hub for aluminium with their solar smelters offering 0 carbon emissions during production.
The Carbon Chain is offering a number of solutions for clients such as software so one can calculate the carbon emissions. They offer other solutions like helping with procurement finding the cheapest product with the least carbon emissions embedded in the product and I expect they are going to grow their business very fast. This will no doubt reshape markets with the likes of India and China moving from cheap too expensive from the 1st January. Another aspect they are offering is financing helping cover the cost of the carbon certificates. This is going to create a whole new type of investment where people or businesses can buy and sell trading carbon emissions.
There is still 5 months before this all kicks off and I am sure there is a lot sill to be raised and discussed and will this create another trade war?