According to a report released by the Global Trade Research Initiative, the European Union's (EU) Carbon Border Adjustment Mechanism (CBAM) will not only disrupt global trade but will also have a negligible impact on climate (GTRI).
Electricity, fertiliser, hydrogen, and cement will also attract carbon tax.
The CBAM will be implemented in four phases.
A 27-month transition period will begin on October 1. Exporters will not be required to pay tax, but will be required to share information about the carbon content of aluminum, steel, and other covered products with their respective EU-based importers. This information will be provided to the European Commission.
The EU will begin collecting carbon tax on each shipment of steel and aluminum on January 1, 2026. The mechanism will tax all goods and materials imported into the EU by 2034.
This will push up tariffs for iron and steel as well, as aluminium products to 20-35 per cent, up from the average 2.2 per cent bound tariff rate agreed upon by the EU for its manufacturers at the World Trade Organisation (WTO).
“High tariff walls will disrupt world trade,” the think tank said.
The CBAM, according to the EU, is a tool for putting a fair price on the carbon emitted during the production of carbon-intensive goods entering the EU. In addition, the trade bloc wishes to encourage cleaner industrial production in non-EU countries.