The European Union (EU) is not shy in its climate and environmental goals. In 2019, with the approval of the European Green Deal, ambitious targets were set to guide an effective transition to a low-carbon economy, with the group expected to reach carbon neutrality by 2050.
Until recently, however, these targets were unclear on the relationship of EU countries with the rest of the world, especially with countries responsible for exporting products to Europe.
Developments in recent months have dispelled any mystery or doubt on the matter. Countries that export to the EU will have to comply with rigorous sustainability rules to continue accessing the European market. Among these rules, the ones with the greatest potential effect for Brazilian exporters are the related to combating deforestation and to customs taxation of carbon.
Carbon taxation will be implemented by the Carbon Border Adjustment Mechanism (CBAM), established by Regulation 2023/956 of the European Parliament. Companies exporting products with large carbon footprints will have to purchase CBAM certificates to cover the emissions embodied in their products. As such, the mechanism’s operation will be similar and complementary to the European Emission Trading System (EU ETS).
Although the CBAM will only come into full force in 2026, in October this year, the mechanism will be applied on an initial basis, for select exports to Europe, notably: steel, iron, aluminum, electricity, fertilizers and cement.
With this, Brazilian exporters will have to consider the CBAM customs tariff as a new cost incorporated into exports.
The regulation aimed at fighting deforestation, recently approved by the European Council,[1] aims to bar trade and consumption in the EU of products responsible for generating deforestation in their countries of origin.
The regulation will affect exporters of the following raw materials: palm oil, cattle, soy, coffee, cocoa, wood, and rubber, as well as any product that is fed (mainly considered the raising of animals with soy-based feed) or derived from these raw materials, such as beef, leather, chocolate, wooden furniture and printed paper products, among others.
The direct implication is that companies exporting the abovementioned products will need to create a due diligence process for their supply chain in order to ensure that the final product does not originate from deforested land, as well as demonstrate compliance with existing human rights standards.
The expectation is that the norm will come into effect as early as next year.
Although it is not possible, at this moment, to predict the impacts of the European Green Deal on foreign trade, it is perceived that the European Union more and more asserts itself as a powerful agent in defense of sustainability, imposing goals not only for itself but also for other nations with whom the group relates.
It is clear that compliance with the standards of the European Green Deal represents a challenge for the national market. The new regulations, however, also create opportunities for Brazilian entrepreneurs to effectively engage in the sustainability agenda and, with adequate dedication and investment, emerge as important agents for sustainability in international trade.
[1] For more information, we suggest visiting the European Commission's website page.
