The European Union has begun the process of introducing new taxes on imports of some petrochemicals and other products (such as cement) based on the carbon emissions associated with the particular product. Other major economies will follow suit, with the United Kingdom already beginning implementation of these taxes, called Carbon Border Adjustment Measures (or CBAMs). As the name suggests, the measures are aimed to address carbon leakage by adjusting the prices of commodities to ensue that producers do not avoid carbon taxes levied against domestic production in the importing market by offshoring production to jurisdictions without carbon pricing mechanisms.
This has serious implications for exporters of the commodities earmarked for CBAMs, including Trinidad & Tobago, one of the world’s major exporters of ammonia (one of the products identified in the first phase of implementation). Exports of ammonia into the EU and other markets adopting CBAMs will be taxed based on their carbon emissions, making our exports less competitive against producers with lower carbon intensive operations. This represents a serious challenge to our petrochemical producers, and this challenge is likely to only increase as more jurisdictions introduce similar measures.
The good news is that Trinidad & Tobago can meet this challenge through two major routes. Firstly, CBAMs are only applied when an imported product has not had had a carbon price levied against it in the producing country.
Therefore, if Trinidad & Tobago is able to adjust the way that petrochemical producers are taxed to include a compliance carbon price of some form or another then the Government of T&T, rather than the EU, will collect the revenue associated with the carbon price.This sounds easy in theory but is complicated in practice. Nevertheless, it is clearly a conversation that we need to have now and we need to have a clear dialogue between the Government and industry about how we can reform our taxation system to allow us to keep the revenue here, rather than having the taxes collected in the EU.
The second major route to reduce the potential impact of CBAMs is to reduce the scope 1 & 2 emissions associated with the production of commodities in Trinidad (direct and indirect emissions). There are many ways in which this can be addressed including geological sequestration of CO2 emissions, substituting hydrogen produced from natural gas with lower carbon (green) hydrogen produced from water, energy efficiency, the introduction of renewables and reducing emissions of methane and other greenhouses gases in the production process. It is important to note that these are not mutually exclusive actions and Trinidad & Tobago should be pursuing them all (as we like to say, it is about “and” rather than “or”).
While these are all possible routes to avoid the imposition of CBAMs on our commodity exports, there is a lot of detailed work that has to be done to make this a reality. One vital step is to implement a robust national system of monitoring, reporting and verifying emissions, usually called the MRV system. Importing countries with CBAMs are not just going to take a company’s own data about the emissions associated with a particular commodity and they will want to see that there is a robust and credible national system to measure emissions. This will also be important for any fair carbon taxation system.
Industry does not typically call for new regulations from Government, but in this case Trinidad & Tobago does urgently need a national legislated MRV system to be put in place. The Energy Chamber is committed to working with all our members and with Government to make sure that a robust MRV system is legislated and operationalised. This is going to be a major focus at the Caribbean Sustainable Energy Conference.