On March 25th and 26th, I was invited by the organizers (via RIETI) to participate in the international conference "Convening on Carbon Pricing, CBAM and Green Transition" held at the University of Pretoria in South Africa (which holds the presidency of G20 in 2025).
The conference was organized by the African Tax Institute, J-PAL (a global network of universities for poverty eradication research), and Climate Action Platform Africa, and was sponsored by the Gates Foundation. The project was primarily planned and implemented by professors from the Massachusetts Institute of Technology (MIT), Harvard University, the University of California, Los Angeles (UCLA) and other institutions. The goal of the conference was to discuss how to promote the carbon pricing system.
The conference brought together approximately 40 experts from around the world (from governments, international organizations, industry, universities and think tanks), and discussions were held under the Chatham House Rules.
The participants came from a wide variety of countries, including South Africa, Mozambique, Kenya, Nigeria, Uganda, Sierra Leone, Egypt, Morocco, Turkey, Belgium, the Netherlands, the United States, Brazil, India, Thailand, Malaysia, Indonesia and Australia, and I was the only participant from Japan. Although key EU authorities were on the initial list of participants, they did not attend.
First, let me introduce the current status of CBAM.
CBAM is part of the Fit for 55 policy package (a number of measures aimed at 55% reduction of Green House Gas (GHG) emission by 2030) announced by European Commission President Von der Leyen in 2021, and is a system that complements the EU Emissions Trading System (EU-ETS) which requires importers to pay the difference between the carbon price of the item in the EU and its exporting country .
This is intended to prevent carbon leakage (the shifting of production to locations outside the EU) in industries subject to the EU-ETS including steel, cement, aluminum, fertilizer, electricity, and hydrogen.
Its implementation began in October 2023 with a transition period, during which importers are required to report the carbon content of the relevant items, and full implementation in the form of actual levy of carbon price difference will begin in January 2026.
The UK has also announced that it will introduce CBAM in 2027. This is the first time this has been done outside the EU. In the United States, a bill to introduce CBAM (Clean Competition Act) was previously submitted to Congress, and the introduction of CBAM was considered during the Biden administration, but there is no prospect of its introduction under the current Trump administration.
CBAM has had a major impact on the world's EU trading partners since the announcement of the system (and even during the preliminary consideration phase), and has sparked a major policy debate over the pros and cons of the system.
Each country is analyzing its domestic impact and considering response measures. Some countries have threatened to file a WTO dispute case over its trade-restrictive nature (the EU side argues that CBAM complies with GATT rules).
The EU-Japan Centre for Industrial Cooperation has covered the EU-CBAM in its Policy Seminars and Policy Insights (policy reports), and the author has also posted columns on the topic, so please refer to those for more information.
EU CBAM and its implication for Japanese companies
EU Policy Insights Vol. 04 (In Japanese)
Column: "Japan Should Cooperate Constructively with the EU on CBAM"
Below is an overview of the conference discussion and my impression.
First, I am once again impressed by the EU's vision, execution ability, and the significant impact of the innovative policy known as CBAM.
Looking at the lineup of experts who met on this occasion, one is amazed by the coverage of their countries of affiliation and range of areas of expertise (climate policy, trade policy, fiscal policy, development policy, economics, international politics, etc.). This means that CBAM, as a policy venture, is bringing interdisciplinary implications to stakeholders in many countries around the world.
Having listened to the discussion, I could not help but feel intellectually stimulated by the diverse perspectives offered by the participants, particularly given my own past experience in the formulation of related policies.
This once again reminded me of the strength of the EU's influence, whose introduction of CBAM has spread ripples around the world. This is a perfect example of the "Brussels effect."
Second, it was confirmed that the reactions to CBAM varied significantly.
Given the location of the event, many participants were from African countries, and they were generally cautious and critical of CBAM.
To summarize their arguments, (1) CBAM is a unilateral measure by the EU and goes against the principle of multilateralism, (2) it is protectionism under the guise of environmental protection, and (3) it contradicts the principle of "Common but Differentiated Responsibilities" (CBDR) in the Paris Agreement, as well as the concept of “Just Transition.”
What was particularly new to me, perhaps because of the many participants involved in fiscal policy, was the argument that the EU's taxation on products from developing countries is a reverse transfer of wealth through tax revenue.
However, this point may work exactly as the EU intended. In other words, rather than having tax revenue taken by the EU, some countries are considering a proposal to impose taxes on the export side, because this could lead to the global spread of the carbon price system that the EU is aiming for. It also came to light that African countries are dissatisfied with the EU but are considering introducing their own carbon pricing system.
On the other hand, participants from India, Southeast Asia, Australia and Brazil, while assessing the impact of CBAM on their exports to the EU, introduced their development and implementation of their own carbon pricing systems in response to CBAM. Japan would likely be included in such a group as well. This may reflect the fact that exports from Asian countries to the EU in sectors covered by CBAM are generally not large, and therefore the impact is not significant.
Regarding the impact of CBAM on Asia-Pacific countries, the analysis by RIETI Faculty Fellow Toshihide Arimura and Aline Mortha is helpful.
Column: "Effect of a European Carbon Border Adjustment Mechanism on Asia and the Pacific "
Incidentally, as was introduced during the conference, the World Bank has developed an indicator called the CBAM Exposure Index. This is an indicator that examines the carbon intensity of CBAM-targeted products from certain countries and the impact of CBAM on that country's exports to the EU.
Relative CBAM Exposure Index
Furthermore, among the issues raised concerning the EU-CBAM system is that it only counts for direct carbon pricing (cap-and-trade ETS or carbon taxes), while there are arguments that indirect carbon pricing (such as decarbonization investment subsidies) should also be included. However, there is also a counterargument that this would open a Pandora's box regarding the extent of what should be included.
Another problem with the system is its significant administrative burden and costs associated with Measurement, Reporting and Verification (MRV), and it was pointed out that it would only increase business opportunities for European consultants. In response to this, simplification measures by the European Commission were recently introduced, which has reduced the number of reporting entities by 90%, resulting in many small-scale importers being exempted from the obligation. It was also pointed out that further simplification measures are anticipated in the upcoming review of the CBAM system scheduled for 2026.
Third, Japan should cooperate constructively with the EU to promote the global adoption of carbon pricing and the development of carbon markets.
Carbon pricing is recognized as the most effective policy tool for reducing emissions from an economic perspective. That is why both the World Bank and the WTO advocate for the establishment of global carbon pricing. The objective of this conference was to be aligned with this goal. There was also a suggestion that the global tax agreement should be used as a precedent when aiming for global carbon pricing.
According to the World Bank, countries that have implemented or are considering implementing carbon pricing (emissions trading or carbon taxes) account for 24% of global emissions.
State and Trends of Carbon Pricing in 2024
Among major emitting countries, only the United States, Russia, and Saudi Arabia have not introduced carbon pricing systems (although some U.S. states like California have implemented emissions trading systems). Given this situation, some argued that the G17, rather than the G20, should take the lead moving forward.
In Japan, the Green Transformation (GX) strategy has also determined the introduction of GX-ETS from 2026 and a fossil fuel levy (effectively a carbon tax) from 2028.
In the Asia-Pacific region, countries such as China, South Korea, Thailand, Malaysia, Indonesia, Australia, and India have either decided to introduce or are considering introducing some form of carbon pricing system.
CBAM was the clear catalyst for these actions. According to one scholar who participated in this event, CBAM is a solution to the prisoner's dilemma regarding carbon pricing.
Japan and the EU formed the Green Alliance for the first time in 2021 to engage in dialogue and collaborate on climate policy, including discussions on CBAM.
In November 2023, Director-General Gerassimos Thomas, responsible for climate action at the European Commission, visited Japan for discussions with the Japanese government and the EU-Japan Centre for Industrial Cooperation held the seminar introduced at the beginning of this column. At that time, the EU asked that Japan provide support for CBAM. Japan is a trustworthy ally for the EU, and this was an expression of the EU's desire to have more allies on its side.
Japan's immediate goal should be to ensure that Japan's GX policy is equivalent to the EU-ETS and is a comparable system (adequacy) so that CBAM is not imposed on exports of the target products from Japan. In this regard, the precedent of confirming adequacy when the EU's General Data Protection Regulation (GDPR) was introduced may be of help.
Based on this, Japan, together with the EU, should aim to promote the adoption of carbon pricing systems throughout the Asia-Pacific region and beyond, and to ensure the interoperability of its rules (such as MRV), based on the achievements of such verification work.
In other words, the level playing field that the EU's CBAM aims for should be expanded to the world in order to strive for a flat world. And we should aim to minimize transaction and management costs.
What I felt through this discussion is that there is still a lack of mutual trust between the EU and African countries.
In contrast, Japan and the EU have a relationship of mutual trust, and Japan has earned the trust of the Asia-Pacific countries. There were voices of praise for the Asia Zero Emission Community (AZEC) initiative led by Japan. Furthermore, the process of introducing and implementing Japan's GX strategy (a "carrot-and-stick" policy of investing 20 trillion Japanese yen in government funds to decarbonize industry, encouraging 150 trillion Japanese yen in public and private investment, while introducing a carbon pricing system), which was introduced by the author, attracted the interest of many participants.
Japan should leverage this position to take the lead, alongside the EU, in shaping global rules. Fortunately, there were some experts who agreed with the author's argument.
In this process, we should utilize and coordinate with the AZEC initiatives.
Additionally, we should take advantage of the formation of a carbon credit market, including Article 6 of the Paris Agreement (which stipulates a market mechanism for the international transfer of emission reductions).
In other words, in coordination with the process of advancing the GX strategy in Japan through a “carrot-and-stick” approach, we should use the carrot of ensuring a flow of public and private funds to encourage decarbonization investment in the Asia-Pacific region, as well as the stick of introducing and implementing a carbon pricing system.
It is the EU's hope that Japan will demonstrate leadership in the introduction and dissemination of the global adoption of carbon pricing, starting with the Asia-Pacific region, and it would likely become a representative use case of the Japan-EU Green Alliance.
This will be a model example of the “Brussels-Tokyo effect” that the author advocates.
(The above is the author's personal opinion and does not necessarily represent the official opinion of the organization to which he belongs.)
April 14, 2025
>> Original text in Japanese
