ETS

tmas34

The long term view is that the current global manufacturing base is economically efficient but environmentally disastrous. In 30 years time the manufacturing base will not work if it’s too hot and there’s not enough water. CBAM is a tax on dirty production and partly a catalyst for investing in industrial transformation, which is already happening. EUTS is just the polluter pays principle in action, plenty of countries have and are establishing ETS (see Japan and their GX bonds). Europes biggest trading parters are China and itself. CBAM is a mechanism to even out carbon pricing to encourage that production via low-carbon energy or materials happens. CBAM (in tandem with EU Taxonomy) will make producers achieve low carbon production overseas and draw in capital for low-energy transition from banks and DFIs. EU and China are already the main markets for labelled bonds (green, transition) and there is no shortage of investor appetite - this capital is directly financing cleaner supply chains. China is also constantly increasing its clean energy % so CBAM is consistent with the direction of travel for energy mix. Also, this may be a European policy but it raises the bar for all. Big American producers (with Chinese production) will still broadly need to adapt to low carbon production and meet the highest bar (CBAM) because they will not sacrifice the European market on the basis of higher carbon taxes (which all markets will eventually impose anyway, via tariffs or ETS). And what is the alternative? Leave your production connected to a fossil fuel powered generator in a country with no decarbonisation plan? Those companies will not be passing buyer due diligence.