Challenges for Vietnam's exports when the EU CBAM is implemented
From October 1, 2023, the initial phase of the EU CBAM officially takes effect and during the transitional step (from October 1, 2023, to December 31, 2025), importers of the 6 groups of goods subject to adjustment (including iron and steel, cement, fertilizers, aluminum, electricity, and hydrogen) will only have to declare the emission levels of the goods and will not have to pay any taxes/fees. Therefore, the transitional phase of CBAM is assessed as not having too much impact on Vietnam's export activities to the EU market.
However, with the requirement for emissions declaration, export production enterprises of related products to the EU market need to monitor and build emission reports according to regulations. Vietnamese enterprises will have to provide information on both direct emissions (generated during the production process) and indirect emissions (generated during electricity production, used for goods production) embedded in the product. In addition, the reporting obligation is required to be carried out quarterly (no later than one month after the end of the quarter). These requirements pose considerable compliance cost challenges for related businesses when exporting to the EU market.
From 2026, along with the declaration obligation, businesses will have to pay a corresponding fee for the net carbon emissions embedded in the product. CBAM compliance costs (including emission monitoring/reporting costs, the price of purchasing CBAM certificates) will indirectly affect product costs, reducing the price competitiveness of Vietnamese products.
In the initial phase of CBAM application, among the 6 groups of goods within the scope of adjustment, Vietnam currently only exports 4 items (aluminum, iron and steel, cement, and fertilizers) to the EU market and the export turnover of these items is still relatively limited. According to 2022 data from ITC Trademap, the turnover of these 4 groups only accounts for about 6.5% of Vietnam's total exports to the EU, of which the majority of turnover is iron and steel (accounting for 90%) and aluminum (accounting for 8.6%). However, for iron and steel and aluminum alone, export turnover to the EU accounts for more than 19% of Vietnam's total export turnover of these products to the world. Therefore, although the initial phase of the EU CBAM does not significantly affect Vietnam's exports in general, it has a strong impact on the export of related commodity sectors (especially iron and steel and aluminum).
Source: Center for WTO and International Trade - VCCI