Yesterday I had a chance meeting with one of the biggest buyers of his specific category in the country. His company is the top retailer in the country and we got onto the subject of carbon emissions and the new tax in the form of the Carbon Border Adjustment Mechanism which affects Europe from January 2026. I dare say it will effect everyone and not just Europe because where there is more tax to be made Governments will not ignore it.
What was surprising is he has never heard of it before I had raised the subject and it has never come up in any conversations at his company. His thinking was that if it was that serious they would have been all over it already. Funny how many of us are so informed of what is taking place and others have no understanding. They have no clue what is coming and how it is going to change how they do their buying. I find it odd that they will happily quibble over paying $0.05 c extra on a product when that product could and will be out of their target price zone when CBAM takes affect.
I think this is more telling abut the company more than anything else because they should know these things and be planning ahead. His thoughts again that this is Africa and they will find a way around this. I did inform him that would be wishful thinking on his part because this is a regulated law coming into effect and Africa, India and China are screwed because they have had the same attitude.
There are still 22 months before this goes live after which penalties and fines will be implemented which you would think would encourage companies to start planning ahead. This is not going to be a 5% tax increase across the board because the actual percentages vary on the products and the carbon emissions they generate.
If we look at steel products being exported from India to the EU the carbon levies will be between 19.8% and 52.7% depending on various calculations on the secondary emissions which are also included. This new pricing adjustment would stop exports in their tracks due to them not being competitive and why this has to be taken seriously now and not later.
This has to be seen as a trade barrier for countries outside of Europe unless they comply because this CBAM is all about protecting industry in Europe allowing them to compete at the same level. A product manufactured outside of Europe not complying to regulations could easily manufacture their products at a much cheaper rate and why the CBAM will now block those products.
Manufactured products going from China or India to Africa may not be hit with CBAM immediately but if they want to export anywhere else into Europe than they will be excluded unless they are carbon regulated.
The idea China or India will introduce a much lower carbon taxation rate also does not work because that amount will be deducted from the CBAM EU calculation costs and they will have to pay the difference. There is no hiding from this which in some ways will be a good thing because it protects local industry. The prices consumers pay will be slightly higher due to this new added tax but this should help boost the local economy supporting local industry.