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22 Sep 2023

Econ Digest

Steel exporters to the EU must know CBAM, which poses major challenges


         EU authorities have introduced more details of the Carbon Border Adjustment Mechanism (CBAM), which will enter a transitional phase in October 2023 before coming into effect in 2026. Thai steel exporters to the EU may need to prepare for CBAM reporting, and consider the price of CBAM certificates in order to weigh the cost-effectiveness of investments in enhancing production processes. They may have different alternatives in making adjustments, depending on their market share, production structure and adaptability. Going forward, government measures are essential to support Thai exports affected by the CBAM.
         Additional details of the EU CBAM that will enter its transitional phase in October 2023 have been released, though some issues are pending finalization. Steel exporters are required to report carbon emissions data to the EU despite the complex reporting processes, particularly the amount of carbon emissions that affect the calculation of the CBAM certificate. Companies with a carbon footprint of products (CFP) can calculate the price of a CBAM certificate using their own greenhouse gas (GHG) data. Meanwhile, businesses – especially SMEs – not having carbon footprint data must use the EU’s default values for calculation. During the transitionary phase of the CBAM until its actual implementation in 2026, Thai steel exporters who are aware of the cost of CBAM certificates may consider investment options to transform their production processes to reduce GHG emissions.
         KResearch projects that the overall cost of CBAM certificates will account for around 1.5-1.7% – amounting to THB167-193 million – of the total value of Thai steel exports to the EU under the CBAM. Thai steel exporters to the EU may need to purchase a CBAM certificate at a cost of THB 1,338-1,545/ton. However, these figures are only estimates to assess the potential impact of this measure on the Thai steel industry. Businesses plan to purchase CBAM certificates from January 2026. Their costs would vary depending on several variables.
         Given different specific factors, Thai steel exporters to the EU must consider the appropriate timing and cost-effectiveness of production process adjustment in order to reduce GHG based on the available options, as well as the price of CBAM certificates that will tend to rise. Going forward, aside from business adjustments, government support in enactment of the Climate Change Act, a carbon pricing mechanism that meets international standards, carbon tax measures, and Thailand’s emissions intensity benchmark will be essential. These endeavors will help reduce the cost of CBAM certificates and expedite the green transition, driving the country and the global effort towards the net zero goals.

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