Carbon tax and compatition to reduce emission

The pressure of a carbon tax on businesses

Europe will impose a carbon tax on imports, initially on steel, cement, fertilizer, iron, aluminum, and electrical appliances. This must be a new global trend originating from significant economies to deal with climate change.

In mid-December 2022, the EU announced that it would implement a carbon border adjustment mechanism (CBAM). Accordingly, this market will levy a carbon tax on all exports imported here based on the intensity of greenhouse gas emissions in the production process in the host country.

Importers will have to report the emissions contained in imported goods. If these emissions exceed European standards, businesses are required to buy emission certificates according to the current Carbon price in Europe.

"The EU is the first trading area in the world to levy a carbon tax on imported goods. We have been discussing this issue for over 20 years. This is a historic climate agreement," said Pascal Canfin.

Taxation is a key pillar of Europe's climate policies and one of the mechanisms the EU has to encourage trading partners to decarbonize the manufacturing sector. According to the European Parliament, CBAM is designed to comply with World Trade Organization (WTO) rules to prevent protectionism. 27 EU member states are expected to start piloting CBAM in October 2023. The timetable for implementing the mechanism will depend on the outcome of further negotiations scheduled to take place later this week. The EU is committed to reducing greenhouse gas emissions by 55% by 2030 from levels recorded in 1990 and achieving its goal of being carbon neutral by 2050.

Exports seek to "breakthrough" technical barriers at the beginning of the new year

Thicker inspection frequency, strict requirements on labor and environmental standards, and carbon emissions are technical barriers posed to many export industries in the early days of 2023.

Ms. Tran Thu Quynh, Trade Counselor, Head of the Vietnam Trade Office in Canada, said that consumers in this market are becoming strict with imported products, which are especially interested in reducing carbon emissions. This is also a new form of protection for domestic goods. Additionally, Vietnamese goods face disadvantages in terms of inflation, exchange rate fluctuations, and traffic congestion.

Ms. Quynh said Vietnamese goods have a tariff advantage thanks to the CPTPP. However, Canada also has many FTAs with other markets, so if the above barriers are not overcome, Vietnamese goods are easily replaced by other countries' goods.

Facing challenges, Minister of Industry and Trade Nguyen Hong Dien noted that businesses need to study the market and grasp new guidelines and policies of the host country. In particular, they should pay attention to the unique barriers that regions and markets face, especially those of the EU market. He emphasized: "We can produce many products, but whether the market accepts that product is another matter. It is necessary to change the production method according to market signals, prices, and quality that consumers receive, not production according to customs and habits, to return to the rescue.

Vietnam's efforts in constructing a carbon market

According to the provisions of Decree No. 06/2022/ND-CP, the Ministry of Industry and Trade is responsible for implementing management and technical measures to reduce 268.5 million tons of CO2 by 2030.

To achieve the goal of reducing net emissions to "zero" by 2050, as committed at COP26, Vietnam faces the challenge of developing a low-carbon economy. Carbon pricing is a practical and feasible tool, including a carbon tax and the carbon market.