Beginning in October 2023, the EU intends to implement the first carbon border adjustment mechanism( CBAM ).
The program will mandate that buyers disclose the amount of embedded coal in their imported goods during the transition period. To close the gap between the EU’s coal price and the price in exporting nations, extra fees will be imposed on imported goods starting in 2026.
Iron and steel, concrete, metals, manure, electricity, and hydrogen will be the initial targets of the CBAM. The CBAM is anticipated to have a significant effect on emission-intensive markets like Vietnam, which export goods to the EU. It has the potential to reduce trade attrition from the government’s affected sectors by about US$ 100 million.
According to estimates, the EU’s CBAM in its present form has had the greatest impact on the Vietnamese metal industry. An extra cost of about US$ 80, or 10 % of the trade price, could apply to a tonne of metal that is exported to the EU.
Steel’s import value could drop by up to 3.7 %. Some industries that are impacted include cement and aluminum. Additionally administrative costs associated with testing, monitoring, and verifying the embedded emissions in their exported products may be incurred by exporting businesses.
As a result, the CBAM may hinder Vietnam’s trade profitability. Risks are present in the EU’s CBAM as it evolves. If embedded emissions boundaries are extended to include the entire value chain of production inputs, its effects may increase quickly. The effects may also increase if some nations, like the United Kingdom, Canada, and Japan, follow the EU’s lead and implement their own CBAMs.
Therefore, it’s crucial to prepare for the CBAM later. The eleventh-largest producer to the EU is Vietnam. Vietnam will need to lessen the effects of the CBAM in order to increase its exports and wholly reap the significant advantages of its trade, agreements, andnbsp with the EU. This can be partly accomplished by lowering the emissions levels of Vietnam’s exported goods.
Decarbonizing the light field will significantly contribute to emission reductions in the CBAM sectors because they use a lot of electricity. Luckily, Vietnam has a lot of ability to harness solar and wind energy and nbsp to speed up the renewables of electricity. Nearly 46 times greater than the nation’s installed capacity in 2022 is the combined future of solar and wind energy.
Vietnam may concentrate on increasing its penetration of solar and wind energy. To remove current barriers to the adoption of renewable energy, such as the reduction of solar and wind outputs due to & nbsp, the constrained grid capacity, it is crucial to track the upgrading of grid systems quickly.
If constructed, a South-North home high-voltage clear present subsea cable could help with grid management and make sure that the most affordable electricity generation opportunities are taken advantage of.
Industries would be able to purchase solar and wind power directly from independent renewable producers if the electricity market were to be reformatted, including allowing & nbsp and direct power purchase agreements. The public would then have less to worry about maintaining energy security because the competition would be more active in promoting renewables.
In the upcoming seventh National Power Development Master Plan, ambitious goals for solar and wind power could be set as additional steps to encourage the adoption of renewable energy sources.
This enormous potential source of renewable power, of which Vietnam has the largest possible in Southeast Asia, may be unleashed by enacting regulations to force and lease onshore wind power projects andnbsp. Increasing energy efficiency through industrial best practices and technical advancements could also aid in achieving this objective.
Phasing out unabated coal power would also contribute to reducing emissions. Imposing a carbon price would reduce CBAM certificate payments. Carbon pricing could enable the revenues to be recycled in the Vietnamese economy and used to support initiatives like technological renovation to improve energy efficiency and promote the uptake of renewables.
Asian businesses covered by CBAM will gain from using coal capture, utilization, and storage technologies as well as later switching production inputs from fossil fuels to renewable sources like natural hydrogen. However, these systems are still in their infancy and are not yet price-competitive.
In the short term, Vietnam will need to improve its capacity for testing, monitoring, and identification as well as participate in constructive dialog with the EU to find CBAM-favorable problems.
In addition to lessening the effects of the CBAM, accelerating the switch to solar power would make Vietnam achieve its ambitious goal of peaking its energy emissions by 2030, which it pledged in December 2022 under the Just Energy Transition Partnership.
Contributing to Vietnam’s climate and national emissions goals, such as achieving net zero emissions by 2050, lowering local air and pollution levels, and creating a & nbsp, domestic renewable energy industries, are additional advantages of the energy transition.
Vietnam can lay a solid foundation for pursuing natural and green growth by increasing its uptake of renewable energy.
At the Crawford School of Public Policy and the Institute for Climate, Energy, and Disaster Solutions, The Australian National University, Thang Nam Do is a Fellow in the Zero-Carbon Energy for the Asia-Pacific Grand Challenge Program.
This andnbsp, post, and was originally published by East Asia Forum and are being reprinted with permission from Creative Commons.