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Vietnam Businesses Embrace Green Practices to Bolster Exports to EU

The European Union (EU) is set to implement the world’s first carbon border adjustment mechanism (CBAM) this year which will have a significant impact on Vietnam’s exports, Vietnam News reported on Thursday.

The CBAM is expected to initially target Vietnam’s energy-intensive industries including iron and steel, cement, aluminum, fertilizer and electricity.

The scheme has the potential to cause a loss of about 100 million U.S. dollars in export earnings from the country’s affected sectors, said experts at a consultation workshop held by the Southeast Asia Energy Transition Partnership (ETP).

According to research published at the workshop, Vietnam’s steel sector is expected to be hardest hit by the CBAM, followed by the aluminum sector.

Vietnamese companies will also incur additional costs of reporting and verifying the embedded emissions in their export products to the EU.

Thus steel production is estimated to drop 0.8 percent by 2030, while export value fell 2.3 percent. And aluminum output is forecast to decline 0.4 percent, and the export value will be down 4.3 percent over the period.

Given the fact that Vietnam is the 11th biggest exporter to the EU, early preparation for the CBAM is important, said Do Nam Thang, an expert from Applied Economic Modelling and Data Analysis.

“CBAM is evolving with many uncertainties,” Thang said. “The mechanism will affect enterprises and the country’s export competitiveness in global markets.”

On the positive side, Vietnamese exporters could reap the potential benefits of its trade agreements with the EU, including lower tariffs and easier access to the market, when they boost their environmental, social, and corporate governance practices, reducing the embedded carbon in their exported products, according to experts of the Vietnam ESG Investor Conference.

Speaking at a recent meeting in Vietnam, Sirpa Jarvenpaa, director of the Southeast Asia Energy Transition Partnership, said the mechanism aims to tackle “carbon leakage,” which means firms moving their production from the EU to places with less stringent emissions regulations to avoid carbon pricing.

The CBAM is set to take effect in October this year with a three-year transitional phase before becoming fully operational in 2034. 

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