Analyst: EU carbon tariff will spur new emissions data market

It may also prove a boon for U.S. steel producers — as long as they can navigate the complex reporting requirements.

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February 2, 2024
Steel at a shipping yard

Photo credit: Costfoto / NurPhoto via Getty Images

Emissions data is about to get a lot more valuable — and a whole lot more complicated. 

The European Union’s Carbon Border Adjustment Mechanism, more commonly known as CBAM is a tax on importers of steel, aluminum, iron, and hydrogen, among other commodities, based on their production emissions. And even before the tax itself comes into effect, CBAM’s reporting requirements are poised to make importing to the EU a slog.

  • The top line: By late 2024, importing to the EU will require an immense amount of emissions data that most manufacturers aren’t already collecting, and which will be complicated to calculate. These complex reporting requirements are set to create a new market, as suppliers put a price on their increasingly valuable data.
  • The market grounding: The tax itself won’t go into effect until 2026, but reporting requirements will continue to ramp up between now and then. The EU has calculated that the tariff alone could cost businesses up to around $14 million in total. Industry organizations have argued that CBAM’s requirements pose an excessive burden and that the EU’s estimate is far too low. The British Stainless Steel Association, for instance, placed the cost to European businesses in the billions of dollars.
  • The current take: CBAM is also likely to provide a boost for steel manufacturers based in the United States, which tend to have lower emissions than steel from China or India, said Ilona van den Eijnde, senior manager of global trade and indirect tax at Ernst & Young. “U.S. steel will be a lot cheaper when that financial obligation comes in,” she said. “If U.S. suppliers can facilitate as much as possible the data requirements on their production processes, they will have a huge competitive advantage over other jurisdictions importing iron, steel, and aluminum products into the EU.”

The current reporting requirements under CBAM are relatively straightforward, requiring standing data that’s already required for customs declarations, such as commodity codes and importer locations, said van den Eijnde. The first quarterly report was originally due this week, but was pushed back a month due technical issues with the reporting system.

But as of the third quarter, reporting requirements will become very complex. At that point, van den Eijnde said, importers will need to provide “the actual embedded emission values of their manufacturers,” she said 

“That expands the current data set of approximately 80 fields per transaction to over 250 fields per transaction,” she said, adding that those expanded fields are extremely detailed, and include things like the latitude and longitude of factories and exactly where those factories get their electricity. And they ask for emissions data not only of the factory itself, but also aggregated to a particular good, up to the first relevant precursor.

Later this year, things are going to get very complicated in terms of how many parties are involved, and in terms of the breadth of required data, van den Eijnde said: “The calculations don’t match up with anything we already know.”

That’s because CBAM’s scope includes only certain parts of scope 1, 2, and 3 emissions, which means companies can’t just copy and paste.That’s likely to require too much effort for suppliers to just hand over the newly-required data without an impact on costs. And that means that those outside of the EU that are able to compile the requisite information will have a new and potentially valuable product.

“There’s going to be a market,” van den Eijnde said. “What the value of that market is really depends on how individual contracts play out.”

If U.S. suppliers play their cards right, and can navigate the complex requirements of aggregated product data, there’s a “big opportunity” for them to pull ahead of current market leaders like India and China, she added.

Exactly how long that competitive edge could last is unclear, though. CBAM is “effectively taxing US emissions,” van den Eijnde said, which in the longer-term could push the U.S. towards its own carbon tax.

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