FILE PHOTO: European Union flags flutter outside the EU Commission headquarters in Brussels, Belgium, January 18, 2018. REUTERS/Francois Lenoir/File Photo
JAKARTA: Asean countries, especially Malaysia and Indonesia, are bracing for measures aimed at keeping some of their export goods out of the European Union (EU) unless manufacturers can prove their products’ environmental credentials.
Some deride the EU policy as a trade barrier, while others say it may force origin countries to move faster towards more sustainable production practices.
The policy, known as the Carbon Border Adjustment Mechanism (CBAM), is set to take effect gradually, starting in 2026.
The EU argues it aimed to prevent “carbon leakage”, or domestic industries moving overseas to evade costly emission standards, and thereby ensure a level playing field to keep EU products competitive.
Noncompliant goods shipped to the EU will be subject to a special tax. Initially, the policy only targets cement, electricity, fertilisers (such as nitric acid, ammonia and potassium), as well as iron, steel and aluminium products.
Among Asean member states, Indonesia and Malaysia would be the two most heavily impacted by the import restrictions due to their considerable exports of iron, steel and aluminium to the EU, according to Singapore-based think tank ISEAS-Yusof Ishak Institute.
Malaysian International Trade and Industry Minister Tengku Datuk Seri Zafrul Abdul Aziz told The Jakarta Post on March 20 he deemed the policy unfair, arguing European countries could not expect Asean countries to follow their transition timeline.
He said the policy would force companies to invest more to meet environmental, social and governance standards, which only big companies had the resources for.
“There is a price to compliance. So, it will take time. Smaller companies will do it with more difficulty,” Tengku Zafrul said during an interview.
“I’m worried about the EU’s new CBAM rule, whose preparation will begin this year,” he later added.
Similarly, the head of the Indonesian Trade Ministry’s policy agency, Kasan Muhri, told The Post the agency expected the policy to result in a decline in exports, especially for iron and steel.
For now, the government sees no threat beyond the metal products, as the country does not ship any of the other commodities listed under the CBAM.
He said Indonesia was well prepared to anticipate further development of the policy, including its possible expansion to other goods.
He explained the country had taken various steps towards reducing carbon emissions, such as the implementation of carbon trading and slightly raising its nationally determined contribution (NDC) to reduce emissions under the Paris Agreement.
Ramesh Subramaniam, director general for South-East Asia at the Asian Development Bank (ADB), told The Post that the policy may have a significant impact on Asean economies, many of which still rely on fossil fuels as a primary energy source.
“There will be significant gains given that we’re truly looking at the benefits to be had by changing the fuel mix,” he said in an interview on the sidelines of the South-East Asia Development Symposium 2023: Imagining a Net-Zero Asean, in Bali.
He cited studies showing Asean countries could achieve a net gain of US$240bil (RM1 trillion) per year just by decommissioning coal-fired power plants by 2030 and using more renewable energy, adding those benefits would be delayed the longer the transition was postponed.
“Just by addressing the energy part of it, you achieve savings,” he said.
ADB’s assessment of Indonesia, Thailand, Cambodia, Vietnam and the Philippines was very promising, he said, in regard to how these countries were pursuing their NDC targets, including by engaging in energy transition mechanisms to retire coal-fired power plants ahead of schedule.
Yet he admitted that achieving the desired progress required more investment, whether public or private and would take time. — The Jakarta Post/ANN
