The Topic of Carbon Tariffs Has Been Around for a Long Time. Nowadays, energy saving and emission reduction have become a global consensus. Over 130 countries, including China, have proposed carbon neutrality climate goals.

Carbon neutrality is no longer just an environmental issue; it is also a trade issue that businesses should pay attention to.

1. Developed Countries like the EU and the US Will Impose Carbon Tariffs

In July 2021, the European Commission officially proposed a package of environmental measures to ensure that by 2030, the EU’s greenhouse gas emissions are reduced by at least 55% compared to 1990 levels. This includes the establishment of the EU’s "Carbon Border Adjustment Mechanism," also known as carbon tariffs.

This means that the EU will tax imports of products such as steel, cement, aluminum, and fertilizers from countries and regions with relatively lax carbon emission restrictions. Essentially, this is a special tariff on products imported through international trade, hence the common name "carbon tariffs." The EU's carbon tariff plan is scheduled to be implemented starting January 1, 2023, and it will have a profound impact on global trade rules.

Similarly, the United States has had a significant shift in its stance on carbon tariffs. Since the Biden administration took office, the US has rejoined the Paris Agreement, vigorously developed new energy sources, and announced a legislative draft named the "2021 Fair Transition and Competition Act," advocating for carbon tariffs on imported carbon-intensive products.

Following this, countries such as the UK, Canada, and Japan have softened their attitudes towards carbon tariffs, indicating an increased likelihood of a consensus on carbon tariffs and collective action among developed countries in the future.

2. Carbon Tariff Implementation Mechanism

Taking the EU as an example, the carbon tariff legal document specifies that the taxpayer is the EU importer. Importers must first register with the EU CBAM (Carbon Border Adjustment Mechanism) administration and, upon approval, become "authorized declarants" before they can import relevant products.

For specific calculations, the tax base and its formula can be referenced: Emissions (tons of CO2) = Quantity (tons, megawatt-hours) × Emission intensity (tons of CO2/ton, tons of CO2/megawatt-hour).

Penalties are also very strict: any unregistered importer importing goods subject to carbon tariffs, or registered importers who fail to submit or fail to submit sufficient CBAM electronic certificates on time, will be fined 100 euros per ton of CO2 emissions. Additionally, EU member states may impose administrative or criminal penalties on enterprises or individuals failing to comply with CBAM regulations based on their national rules.

It is noteworthy that the EU carbon tariffs will start from January 1, 2023, with a transition period from 2023 to 2025 during which imported products do not need to pay carbon tariffs. However, importers must submit quarterly reports including total imports, direct and indirect emissions of the products, and the carbon price to be paid in the country of origin. Starting from 2026, the EU carbon tariffs will be fully implemented.

3. Impact on Hardware Exports

Once carbon tariffs are imposed, China’s high-carbon industries will bear the brunt. In 2020, among China's top ten export categories, the total export value of general industrial machinery and parts reached $128.354 billion, a year-on-year increase of 6.1%; the export value of yarns, fabrics, finished products, and related products reached $154.186 billion, a year-on-year increase of 28.9%; and the export value of metal products reached $107.092 billion, a year-on-year increase of 6.1%. These machinery equipment, textiles, and metal products are considered high-carbon products.

Goldman Sachs estimates that if a carbon tax of $100/ton of CO2 is levied on the entire carbon footprint, China’s total exports to the EU could be subjected to carbon border adjustment taxes of up to $35 billion annually. This tax amount accounts for about 7.7% of China’s total annual exports to the EU.

In 2020, China surpassed the US for the first time to become the EU's largest trading partner. The total trade between China and the EU reached 586.032 billion euros, a year-on-year increase of 4.46%, accounting for 16.07% of the EU's total foreign trade, an increase of 2.3 percentage points year-on-year. The US and the UK accounted for 15.22% and 12.20% of the EU's total foreign trade, respectively, making them the EU's second and third-largest trading partners. Once carbon tariffs are implemented, the production costs of China’s high-carbon products for export will directly rise, weakening China’s export competitiveness and inhibiting export growth.

Faced with the approaching carbon tariffs, hardware companies like Peak Fasten Technologies cannot sit idly by. On the one hand, companies can open up new international markets to alleviate the pressure of carbon tariffs by increasing their export share to developing countries. On the other hand, and more fundamentally, it is crucial to vigorously promote low-carbon emission reductions, transform production methods, and change the mode of foreign trade growth. This is the most effective way for sustainable development and long-term prosperity.