by Ze Alves Pereira
In 2019, the European Union imported 830 million dollars of ammonia different parts of the world. Trinidad and Tobago supplied 16% of this amount making it the third largest exporter of ammonia to the EU. This situation remained unchanged in 2021 but due to Russia’s unprovoked war in Ukraine, Trinidad and Tobago would most likely increase its share of export of ammonia to the EU. This is because Russia had been by far the largest trader of ammonia to the EU supplying 35% of total imports. However, war sanctions will have a negative impact on this trade position.
To minimise Russia’s imports decline, by July 2022 the EU Council has issued a regulation with the purpose of granting the temporary suspension of the common customs tariff duties on goods used to produce nitrogen fertilisers, namely ammonia. This is good for Algeria, Trinidad and Tobago, Ukraine, and other countries, though the vast majority are already benefiting from tax exemptions via trade with the EU.
This situation may substantially change in the future when the EU’s Carbon Border Adjustment Mechanism (CBAM) enters in force. The CBAM is a climate measure that is intended to prevent the risk of carbon leakage and support the EU’s increased ambition on climate mitigation, while ensuring WTO compatibility.
There is a strong risk of so-called “carbon leakage”, i.e., companies based in the EU could move carbon-intensive production abroad to take advantage of lax standards, or EU products could be replaced by more carbon-intensive imports. Such carbon leakage can shift emissions outside of Europe and therefore seriously undermine EU and global climate efforts. The CBAM will equalise the price of carbon between domestic products and imports and ensure that the EU’s climate objectives are not undermined by production relocation to countries with less ambitious policies.
Designed in compliance with World Trade Organisation (WTO) rules and other international obligations of the EU, the CBAM system will work as follows: EU importers will buy carbon certificates corresponding to the carbon price that would have been paid, had the goods been produced under the EU’s carbon pricing rules. Conversely, once a non-EU producer can show that they have already paid a price for the carbon used in the production of the imported goods in a third country, the corresponding cost can be fully deducted for the EU importer. The CBAM will help reduce the risk of carbon leakage by encouraging producers in non-EU countries to green their production processes.
CBAMs are already in place in some regions around the world, such as California, where an adjustment is applied to certain imports of electricity. A number of countries such as Canada and Japan are planning similar initiatives.
To provide businesses and other countries with legal certainty and stability, the CBAM will be phased in gradually and will initially apply only to a selected number of goods at high risk of carbon leakage: iron and steel, cement, fertiliser, aluminium, and electricity generation. A reporting system will apply from 2023 for those products with the objective of facilitating a smooth roll out and to facilitate dialogue with third countries. Importers will start paying a financial adjustment in 2026.
This means that grey products from carbon-intensive production will be substantially penalised against green products. Example: T&T exports to the EU of grey ammonia produced from natural gas will pay taxes under the CBAM, whereas green ammonia produced from renewable energy will be exempted.
This is an opportunity for Trinidad and Tobago to seriously commit to renewable energy if it wants to remain a valid contender on the energy market. It is not necessary to leave the energy sector and change the economic model—åsimply recycle the attitude towards energy production! Companies such as NGC, BP, or Shell know this already.
The EU delegation in Port of Spain is currently funding technical assistance to the MEEI, including other important stakeholders such as MoPU and MPD, for the development of a Draft Strategy setting the path for wind energy generation in Trinidad and Tobago. This will be followed by a Wind Resources Assessment Programme. If there is adequate wind blowing, as seems to be the case, the next step could be major investments in onshore and offshore wind farms. Partners such as the EU, the EIB, the IDB, and other international financial institutions are eager to provide funding for clean-energy initiatives. Governments should definitely engage in implementing their National Determined Contributions (NDC) pledged under the Paris Agreement.
Being environmentally and economically viable is possible. The overall objective is to leave a planet that is safe and sustainable for our children and grandchildren. The time to act is now.