Hanoi (VNA) - The Carbon Border Adjustment Mechanism (CBAM) introduced by the European Union (EU) aims to address greenhouse gas emissions associated with certain goods imported into the EU.
Officially effective from October 1, 2023, the CBAM initially applies to six product groups, including cement, electricity, fertilizer, iron and steel, aluminum, and hydrogen.
By January 1, 2026, CBAM will impose carbon tariffs on these goods, based on their greenhouse gas emissions during the production process.
To mitigate potential negative impacts, experts recommend that businesses adopt energy-saving technologies and align with new regulatory requirements.
Additionally, companies should fully leverage the benefits of free trade agreements (FTAs) by focusing on reducing carbon emissions and transitioning to more sustainable production methods.
Vietnam’s steel industry is among the first sectors to be directly affected by the EU’s CBAM. According to the Vietnam Steel Association (VSA), in 2023, the country produced approximately 20 million tonnes of crude steel, ranking 13th globally and leading in Southeast Asia in terms of production and consumption.
The country exported around 11.8 million tonnes of steel, generating export revenue of about 8.9 billion USD, with 27% of these exports going to the EU. This makes the EU the third-largest export market for Vietnamese steel.
Dinh Quoc Thai, Secretary-General of VSA, emphasised that the EU is a significant market. Since the introduction of the CBAM, VSA has collaborated with State management agencies, such as the Department of Climate Change under the Ministry of Natural Resources and Environment, and the Ministry of Industry and Trade, to gather information and provide support to affected companies. VSA has also been issuing monthly bulletins to provide businesses updates on CBAM-related developments, helping them assess the potential impact on their production volumes and export revenues.
VSA has organised conferences and workshops, encouraging companies to optimise energy usage, streamline production, and implement measures to reduce carbon emissions. The association has drafted a roadmap for achieving carbon neutrality by 2050, aligned with Vietnam’s national climate change strategy, to guide steel enterprises in transitioning to greener production processes.
The steel industry, being a capital-intensive sector, faces considerable challenges in adapting to CBAM and transitioning to green technologies. VSA has called for initial support from governmental agencies in the form of technical consulting, technology transfer, and access to green financing. Additionally, greater coordination is needed to ensure that steel companies can source green materials and energy while securing customers who demand products that meet the new carbon standards.
CBAM is not just an environmental measure but also a trade mechanism that could raise the bar for exported goods entering the EU.
Ngo Chung Khanh Deputy Director of the Multilateral Trade Policy Department under the Ministry of Industry and Trade, warned that the scope of CBAM could expand beyond the initial six sectors, potentially affecting other high-value exports. He also projected that more countries might adopt similar carbon border mechanisms, increasing the risks for Vietnamese exporters.
Khanh advised businesses to stay vigilant, even those in sectors not yet covered by the CBAM, as the regulatory landscape could shift rapidly. He also noted that some Vietnamese companies still lack awareness of carbon inventory and greenhouse gas emission regulations, which could hinder their ability to comply with CBAM requirements.
Vietnam has already established mechanisms and policies to reduce carbon emissions, including the Environmental Protection Law and Decree 06/CP. The Ministry of Industry and Trade has also issued Circular 385/2023, which provides guidelines for measuring, reporting, and verifying greenhouse gas emissions. These policies serve as a foundation for businesses to develop their emission reduction strategies.
Nguyen Hong Loan, an expert on CBAM’s technical impact assessment, noted that businesses have until the end of 2025 to build emission reduction plans for their products. Depending on the current state of their technology and emissions, companies can prioritise short-term, medium-term, and long-term actions to reduce their carbon footprint. She also pointed out that while CBAM may initially seem like a financial burden, it incentivises businesses to reduce energy consumption and adopt energy-saving measures, ultimately leading to long-term cost savings and resource efficiency.
Early adoption of green technologies and compliance with CBAM regulations will not only help businesses maintain their market share but also provide a competitive advantage in expanding to other key markets. As global demand for environmentally sustainable products rises, businesses that align with these trends are likely to gain a stronger foothold in international trade.
In preparation for CBAM, the Vietnamese government has assigned the Ministry of Industry and Trade to act as the focal point for consolidating resources and negotiating with foreign partners.
Khanh emphasised the importance of accurate and timely communication about CBAM and recommended that businesses undergo thorough training to ensure compliance with its requirements.
While CBAM presents challenges, it also offers opportunities for Vietnamese exporters to strengthen their competitiveness through sustainable practices. As the regulatory environment evolves, businesses must be proactive in adapting to these changes to secure their position in the global market./.
