Column by Tatyana Edovina about how global competition is “greening”
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The environmental agenda around the world is taking on more and more pronounced economic contours: if previously the main point of such discussions was considered a border carbon tax, now countries are increasingly interested in the volume of subsidies for new industries. Let us remind you that from October 1, 2023, importers to the EU will begin to report on the carbon footprint of their products (during the transition period, only direct greenhouse gas emissions are taken into account). Regulation currently covers six items: cement, iron and steel, electricity, aluminum, fertilizers and hydrogen. Full implementation of the mechanism in the EU is scheduled for 2026. From now on, free quotas under the quota trading system for sectors in which the tax is introduced are gradually abolished – importers will have to purchase certificates at exchange prices. The introduction of the tax affects not only direct suppliers of these products, but also suppliers of raw materials and energy for exporters to the EU. Russian companies, despite sanctions and a sharp decline in exports, according to analysts (see. “Kommersant” dated September 19, 2023), will remain large tax payers.
The environmental agenda around the world is taking on more and more pronounced economic contours: if previously the main point of such discussions was considered a border carbon tax, now countries are increasingly interested in the volume of subsidies for new industries. Let us remind you that from October 1, 2023, importers to the EU will begin to report on the carbon footprint of their products (during the transition period, only direct greenhouse gas emissions are taken into account). Regulation currently covers six items: cement, iron and steel, electricity, aluminum, fertilizers and hydrogen. Full implementation of the mechanism in the EU is scheduled for 2026. From now on, free quotas under the quota trading system for sectors in which the tax is introduced are gradually abolished – importers will have to purchase certificates at exchange prices. The introduction of the tax affects not only direct suppliers of these products, but also suppliers of raw materials and energy for exporters to the EU. Russian companies, despite the sanctions and the sharp decline in exports, according to analysts (see Kommersant, September 19, 2023), will remain large tax payers.
China, where green regulation is developing as rapidly as in the EU, has itself become the target of criticism for its support for industries related to the production of solar panels, batteries and electric vehicles. Last year, the country arguably became the largest auto exporter, shipping more than 5 million vehicles abroad, surpassing Japan for the first time. Back in 2020, China occupied sixth place, while the export of American cars, on the contrary, is declining – the leadership of the Chinese BYD in the production of electric vehicles (the total production of electric vehicles in China last year exceeded 8 million – this is 46% year-on-year) has also become significant.
Such a sharp increase attracted the attention of the US Treasury – during a recent trip to China, the head of the department, Janet Yellen, said that subsidizing these industries reduces output in other countries, just as a decade ago, increasing state support for the steel industry led to its oppression not only in the United States. This criticism, however, is unlikely to lead to a significant restriction of support for Chinese companies (it concerns, for example, encouraging the transition to electric vehicles), but may become the basis for new measures to support American manufacturers. With access to the US market already complicated by tariffs and outright bans, competition is likely to shift to third-country markets.
Finally, another trend is the proliferation of voluntary trading mechanisms for carbon credits, allowing companies to meet their carbon neutrality promises. For companies, the purchase of such credits is justified if it is impossible to quickly change technology (or, in principle, significantly reduce emissions). Much of cap-and-trade regulation is not yet mandatory, but opportunities to reduce emissions are also becoming an increasingly promising competitive factor, which is what supports companies in the production of green steel and other similarly labeled products.
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