How trade can save the planet, one tedious spreadsheet at a time

If you want to see what green trade policy looks like, it comes in the form of steelmakers around the world grumbling as they fill in spreadsheets about carbon emissions, and palm oil growers from Malaysia and Indonesia poring over the minute detail of photos from satellites.

The destination for all this information is Brussels. Environmental trade negotiations at a multilateral level are essentially dead in the water: India is blocking the whole principle of discussing climate change at the World Trade Organization. The EU’s unilateral carbon border adjustment mechanism (CBAM) and its forthcoming ban on commodities produced on recently deforested land are two of the few green trade games in town.

This being the EU, the measures are generally fine in theory — and possibly even motivated by principle, you never know — but complex and bureaucratic in practice. CBAM and deforestation are respectively the responsibility of the European Commission’s tax and environment directorates, not the trade directorate, and they are less used to dealing with policy affecting foreign producers. Even commission officials privately admit that implementation, especially for deforestation, has been poor. To foreign exporters, the new EU regulations can look a lot like protectionism via so-called technical barriers to trade.

As if to prove the point, this week a WTO dispute settlement panel ruled on a Malaysian complaint against an EU renewable energy directive that in effect blocked imports of palm oil. It was a complicated decision but the general upshot of it was that whatever the fairness of the principle, it has been poorly implemented in practice. 

For CBAM, companies importing steel and other emissions-intensive products — as with trade tariffs, it’s importers that will actually pay the tax — already have to report those emissions to the EU ahead of the planned imposition of tariffs in 2026.

The duties are intended to equalise the carbon price for domestic and imported goods, essentially extending the EU’s emissions trading system to foreign businesses. Policymakers, particularly those in the EU’s neighbourhood such as Turkey and the UK, are contemplating linking up directly with the EU’s ETS scheme, which would reduce policy discretion but also remove paperwork.

In the meantime, for businesses like Turkish steelmakers — the country, which is inside the EU customs union, is the world’s fifth-biggest steel exporter — the process is something of a jolt.

Uğur Dalbeler of the Turkish Steel Exporters’ Federation says: “We’ve been used to the world being divided into two, the developed countries playing happily in their playground and the developing countries out on their own . . . now we find we’re outside and have to get back in.” Dalbeler is no implacable enemy of CBAM, which he says will give Turkey a competitive edge against other non-EU exporters with higher carbon emissions. But the adjustment, he says, involves filling in “very complicated Excel spreadsheets”.

Mundane as they may seem, the practicalities of the process are sparking as many complaints as the principle. Emissions reporting by EU importers is much slower than hoped. Companies say that the EU website is buggy and the methodology complicated. They can use so-called “default values” — benchmark measures published by the EU — rather than their actual emissions. But while easing their administrative burden, those also overstate their carbon footprint.

The burden is particularly heavy for smaller trading companies. Any import consignment of CBAM products worth more than just €150 must be reported and will eventually face duties. For a small business importing small batches of nuts and bolts, that means the regulatory cost is not trivial. There’s a burgeoning industry of consultants who will help out, but for a fee.

Palm oil growers in Malaysia and Indonesia are having similar issues. The industry there has many thousands of smallholder farmers, many of whom already regard the EU’s existing import restrictions to be arbitrary protectionism. It doesn’t help that they are being imposed by a trading bloc dominated by European former colonial powers.

To prove that a particular batch of palm oil was not grown on recently deforested land involves complex processes of combining satellite photos with geolocation data showing exactly to which piece of land they refer. Time to perfect that practice is short: the regulation starts to apply from December this year. Tengku Zafrul Abdul Aziz, the Malaysian trade minister, told the FT in a recent interview: “It’s quite an aggressive timeline given what the companies need to do to comply, and that’s why some view this as a form of a non-tariff barrier.” 

All this may seem technical and abstruse. But with standard import tariffs for most industrial goods in advanced economies pretty low, technical and regulatory hurdles have emerged in the past few decades as one of the biggest impediments to world trade. Brussels has just raised the bar higher. The EU may delay implementation of CBAM or deforestation rules by a year or two to give companies time to adjust, but it’s highly unlikely to back off the plans altogether. Those producers spending their time filling out spreadsheets and scrutinising satellite photos have a busy time ahead.

alan.beattie@ft.com

Climate Capital

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