CBAM – Hurdle or lever to ASEAN-EU trades?

In August 2023, the European Commission launched a groundbreaking initiative, the Carbon Border Adjustment Mechanism (CBAM), which is aimed to incentivize exporting countries into the EU to decarbonize their industries.

The CBAM will initially target carbon-intensive goods: cement, iron and steel, aluminium, fertilisers, electricity and hydrogen.

This policy can reshape the trade dynamics between ASEAN and the EU significantly. ASEAN's ability to adapt to the CBAM will determine not just future trade volumes but also influence broader economic relations. For businesses within the region, the transformation towards greener processes is no longer optional but a critical path to maintaining and expanding market access.

What Exactly is the CBAM?

Described by the European Commission as a strategy to "put a fair price on the carbon emitted during the production of goods entering the EU," the CBAM is more than just a regulatory measure. It is a catalyst for global industrial transformation, promoting cleaner production methods outside the EU to ensure that imported goods stand on equal footing with those manufactured within the bloc. 

As of October 2023, CBAM entered a transitional phase where importers begin to disclose the greenhouse gases (GHG) embedded in their products, leading up to a full implementation in 2026 that will require the acquisition and surrender of emission certificates.

Challenges or Opportunities for ASEAN

The ASEAN region, a vital cog in the global manufacturing landscape, faces unique challenges and opportunities under the CBAM's framework. As ASEAN is the EU's third-largest trading partner (after the US and China), the stakes are high for nations like Indonesia, Malaysia, Thailand, and Vietnam, known for their substantial exports in CBAM-targeted sectors.

The CBAM isn't just a regulatory hurdle; it's a competitive lever. ASEAN businesses that can pivot quickly to sustainable practices not only mitigate risks but also stand to capture increased market share in the EU. The mechanism encourages an accelerated green transition, turning potential vulnerability into a strategic advantage.

Strategic Impact on ASEAN

As we move closer to the definitive phase of the CBAM in 2026, ASEAN countries must leverage this period to align more closely with global sustainability targets. The transition phase is a crucial time for businesses to reevaluate their processes, engage in technological upgrades, and possibly, redefine their economic narratives towards more sustainable and resilient practices.

In essence, the CBAM is more than a policy—it's a call to action for ASEAN. It offers a profound opportunity to lead in the global shift towards sustainability, turning environmental responsibility into a palpable competitive edge in one of the world’s largest markets.

source: European Commission