What Vietnamese Enterprises Need to Do About the EU’s Carbon Border Adjustment Mechanism (CBAM)

1. General Introduction to CBAM

On October 1, 2023, the Carbon Border Adjustment Mechanism (CBAM) officially took effect, marking a significant implementation step within the European Union’s (EU) “Fit for 55” legislative package. CBAM is considered a pioneering legal tool aimed at applying a carbon price to products imported into the EU, accurately reflecting the amount of carbon emissions generated during their production in the exporting country.

CBAM is built upon two main legal texts:

• Regulation (EU) 2023/956 of the European Parliament and of the Council of 10 May 2023, establishing the CBAM.
• Implementing Regulation (EU) 2023/1773 of the European Commission of 17 August 2023, detailing the reporting obligations during the transitional period.

2. Scope and Application

According to Annex I of Regulation (EU) 2023/956, CBAM initially applies to six categories of goods:

• Cement
• Electricity
• Fertilizers
• Iron and steel
• Aluminum
• Hydrogen

This list may be expanded following periodic reviews by the European Commission, particularly to include products with high emission intensity or those that are energy-intensive during production.

CBAM applies to importers of the listed goods into the EU market. However, this necessitates close coordination between the EU-based importer and the exporting enterprise in non-EU countries (including Vietnam) to ensure the accuracy and completeness of emissions data for reporting obligations.

3. Legal Obligations of Importers in Each CBAM Implementation Phase

CBAM is being implemented through a four-stage roadmap, with the following specific legal requirements:

Pilot Phase (From October 2023 to the end of 2025)

• Importers of CBAM-regulated goods into the EU have a reporting obligation regarding the greenhouse gas emissions embedded in the production of those goods.
• The report’s content must comply with Article 35 of Regulation (EU) 2023/956, including: total quantity of goods, direct and indirect emissions, and any carbon price paid in the country of origin.
• No financial obligation to purchase CBAM certificates arises during this phase.

Partial Implementation Phase (From 2026)

• Importers will incur a financial obligation to purchase CBAM certificates corresponding to the emissions embedded in the imported goods.
• The price of a CBAM certificate is calculated based on the average price of EU ETS allowances from the previous trading week (Article 21, Regulation 2023/956).
• The process for registering a CBAM account and purchasing certificates will be managed by a specialized authority established by the European Commission, as per Article 14 of Regulation 2023/956.

Comprehensive Review Phase (From 2027)

• The European Commission will conduct a comprehensive assessment of CBAM’s application, including its economic impact, the level of emissions reduction achieved, the adaptability of non-EU enterprises, and its compatibility with international trade commitments.
• The results of this review may lead to amendments or an expansion of CBAM’s scope.

Full Implementation Phase (From 2034)

• CBAM will officially and completely replace the mechanism of free emission allowances within the EU ETS framework.
• Importers will bear the full financial obligations under the CBAM regulation.

4. Principle of Deduction for Carbon Prices Paid in the Exporting Country

According to Article 22 of Regulation 2023/956, if an importer can prove that a carbon price has already been paid for the goods in the country of origin, a corresponding amount will be deducted from the number of CBAM certificates required. This mechanism acknowledges the environmental responsibilities already fulfilled by the exporting country.

5. Legal and Economic Impacts on Vietnamese Enterprises

CBAM significantly impacts Vietnam’s exporting enterprises, particularly in the steel, cement, and aluminum sectors – industries with a high volume of exports to the EU and substantial emission intensity. To avoid legal risks and maintain access to the EU market, Vietnamese enterprises need to:

• Review export product portfolios and actual emission levels.
• Coordinate closely with import partners to comply with CBAM reporting obligations.
• Proactively transition to green production processes: Invest in emission-reduction technologies, use clean energy, and optimize production lines to reduce the cost of CBAM certificates.
• Stay promptly updated on legal changes from the EU to adjust business plans accordingly.

6. Conclusion

CBAM is not just a technical barrier to trade; it also represents a globalizing legal trend of cross-border environmental responsibility. Proactively adapting to CBAM will not only help Vietnamese businesses ensure legal compliance when exporting to the EU but will also create an impetus for restructuring and building sustainable competitive capacity in the green economy era.