The EU's initiative to implement the carbon Boundary Adjustment Mechanism (CBAM) is bold, but it is not surprising given the growing gap in attitudes to tackling climate problems in different parts of the world. The EU's carbon price for imported goods and services is essentially a transmission of its determination to address the climate problem to its trading partners. This ensures that the competitiveness of local producers will not be undermined by the fact that imported goods are not subject to the same level of environmental review or cost. Not surprisingly, the EU's trading partners are resistant to the border adjustment mechanism. Threats of a trade war and international disputes abound in the press, but the EU's position remains firm. China, Brazil, South Africa, India, Australia and Russia have been opposed to CBAM. But some of these countries are also developing their own carbon policies.

Share of EU imports by country of origin in 2019

Source: European Commission, Bloomberg New Energy Finance. (note: the import share is calculated in tons, which refers to the top 30 countries (excluding electricity) in the planned EU CBAM (excluding electricity) ranked by import volume. )

In January 2021, Russia's pilot carbon emissions trading system (ETS) in Sakhalin was approved. Although there is still a long way to go to become a national ETS, the move also shows that it has to accept the fact that the EU will not budge.

China's national carbon emissions trading market has just begun to trade. Although it is only included in power generation enterprises at present, it has laid a good foundation for the inclusion of other industries in the future.

In 2019, the Brazilian Ministry of economy urged the government, the private sector and international organizations to commit themselves to "accelerating research" to create a carbon trading market.

Russia, Turkey and China face the highest costs according to their respective share of EU imports for specific industries. India and Australia face negligible CBAM costs, but they are still opposed to it.

Turkey announced that it would establish a national ETS, which began a pilot project in February this year. Although an official date has not yet been set, attempts may be made to speed up the process in order to prepare for the implementation of CBAM by the European Union in 2026.

The fall of Trump means that the EU faces one less rival in trade disputes. The Biden administration has drawn up its own border adjustment plan.

CBAM is likely to increase market demand and European emission quota (EUA) prices. The process of the withdrawal of the free distribution mechanism will determine the extent to which the market is bullish.