Proliferation of CBAM analogs could affect Brazil’s exports – IISD

The main concern that the mechanism causes in the country is related to its role in global trade

The expansion of the cross-border carbon adjustment (BCA) mechanism to the markets of developed countries may lead to a loss of export competitiveness of some Brazilian industries. This is stated in a study by the International Institute for Sustainable Development (IISD).

“The main concern of the CBAM in Brazil is its systemic impact on the international trade regime, as its unilateral nature and potential extension to different national jurisdictions could cause reorientation and distortions in world trade, which would negatively affect economic growth and consumer welfare,” the IISD said in a statement.

The share of Brazilian exports covered by CBAM in the country’s GDP was only 0.15% in 2022. This suggests the following: as long as the mechanism is limited to the bloc’s market, its impact on the country’s economy will be limited.

Exports of goods included in the European mechanism averaged 5.8% of Brazil’s total exports to world markets over three years (2020-2022). The EU accounted for approximately 10% of the total volume of these supplies.

As noted, the products of the steel industry represent almost all Brazilian exports that fall under CBAM (92% of the value of exports of this product group). Aluminum is in second place (3% of the total). The researchers took into account the average for the previous 3 years.

The EU is not an important destination for the country’s foreign shipments of ferrous metals products. In 2020-2022, the bloc accounted for 10.7% of total exports under the harmonized code (HS) section 72, which is the most significant by value, and 6.3% under HS section 73.

Cement exports are insignificant in value terms, with Brazilian trade in this commodity being more intense with neighboring countries. As for hydrogen, its exports are still in their infancy.

According to the study, the threats to Brazilian exports are increased by the possibility of BCA spreading to other markets, such as the U.S. and Japan, For example, the United States absorbs almost 50% of Brazil’s Section 72 shipments and 25% of Section 73 shipments. Japan accounts for 30% of the country’s aluminum exports.

Compared to its competitors, Brazil is less sensitive to CBAM than China, Russia, and Turkey in terms of the relative vulnerability index. The latter, for example, has a lower emissions intensity but is more dependent on the European market.

However, its potential spread to the markets of other developed countries could lead to a loss of export competitiveness of some sectors of Brazilian industry. In this context, it is important to evaluate the design of the mechanism adopted in the EU and try to influence the different models it may take in other jurisdictions.

According to the researchers, the Brazilian government and some business organizations tried to influence the development of the European mechanism by responding to public consultations opened by the EU at various stages, as well as to consultations with the governments of the United Kingdom and Canada. The country also expressed its concerns in the framework of the World Trade Organization and other multilateral forums.

As GMK Center reported earlier, the European CBAM could cost India 0.05% of GDP, according to a study by the independent think tank Center for Science and Environment (CSE).