In October 2023, the European Union implemented its Carbon Border Adjustment Mechanism (CBAM), a type of trade policy created to address climate change. And though most of us in T&T are unfamiliar with CBAM, similar policies are being developed all over the world which will have a profound effect on our trade relations, energy sector, and ultimately the economy.
“Trinidad and Tobago's economy could be significantly affected,” says Dr Preeya Mohan, a senior research fellow at The UWI’s Sir Arthur Lewis Institute of Social and Economic Studies (SALISES).
Dr Mohan is the lead researcher on a new publication entitled Border Carbon Adjustments: Trinidad and Tobago Country Report. The report looks at this emerging type of trade policy and its specific impacts on our society. But what are border carbon adjustments (BCAs), and why are they being implemented?
In general, BCAs are a type of carbon tax that developed countries place on foreign imported goods to level the playing field with their own locally produced goods that are already required to meet their carbon emissions standards.
For example, if German importers bring in a product from the developing world, it would be taxed to reflect the carbon emissions in its production process just as German goods have additional production costs because of their strong national/regional climate policies.
Even more importantly, BCAs are designed to ensure that the fight against climate change is a shared, international effort.
“By making imported goods with high carbon footprints more expensive, BCAs incentivise domestic producers to adopt cleaner technologies and reduce their emissions,” says Dr Mohan.
And the EU is just the beginning. The UK, Canada, Japan, and the US are considering implementing similar measures.
But what does that mean for countries such as Trinidad and Tobago, developing nations who export to these developed countries?
The purpose of Dr Mohan’s research was to give a detailed analysis on just that. The BCA T&T report is part of a larger initiative by the International Institute for Sustainable Development (IISD), a Canada-based think tank. IISD has worked with nations to produce similar reports in Brazil and Vietnam, two other countries that will be affected by BCAs, and Canada and the UK, countries that may implement BCAs.
Dr Mohan explains, “IISD's primary objective was to determine the potential impacts of BCAs and to gather the perspectives of local stakeholders. Collaborating with a local research institution like The UWI was deemed essential to obtain this valuable information, which is crucial for the global report.”
When it comes to taxing its carbon emissions, Trinidad and Tobago is in a special, and challenging, position. T&T is a developing, small island state but also a high-income country. Globally, our contribution to emissions is less than 0.1 percent, but our economy is heavily reliant on oil, gas, and petrochemicals. Collectively, the hydrocarbon sector accounts for 37 percent of GDP, 40 percent of government revenue, and a massive 80 percent of exports. That means that even though our portion of global emissions is very low, per capita we are high (over 20 metric tons).
And because T&T is a high-income country, our access to financing for climate friendly technologies and services is limited.
“Despite its high climate vulnerability as a SIDS exposed to sea-level rise and extreme weather events, Trinidad and Tobago faces challenges in accessing international climate finance required for decarbonisation and clean technology adoption,” says Dr Mohan. “Limited financial resources and affordability of advanced technologies can hinder the country’s ability to reduce its carbon footprint and comply with BCAs.”
If the trends in carbon tax policies remain the same, then T&T will have no choice but to comply with BCAs. What that means for our economy will depend on the details of the policies developed by our trading partners in the developed world. Carbon-intensive exports such as ammonia, methanol, and fertilisers, which make up a massive share of our foreign trade business, could jump in price due to BCA tariffs and become less competitive.
We could lose business, which will hurt the hydrocarbon sector, and likely lead to job losses in extraction, refining, manufacturing, and related sectors.
Dr Mohan adds, “The wider negative economic impacts include reduced foreign exchange earnings, government revenue, investment, and economic growth.”
So, how does T&T preserve its export business in the emerging environment? Dr Mohan says that we should not consider BCAs as an attack on developing countries. They are a response to climate change and are being developed and implemented to preserve the natural world from further industrial pollution and degradation.
“We are a high-polluting country, and we need to reduce our greenhouse gases,” she says.
What is crucial, however, is for T&T and other developing nations to be closely involved in the creation of BCAs by the developed world to be sure the terms are fair and achievable. That work has already begun.
The country reports such as the ones done in T&T, Brazil, and Vietnam have been a major resource for information on the consequences of BCAs on these economies, and to get the perspectives of the many groups that represent the nation.
The T&T report, which took approximately six months to complete, included the perspectives of industry, government, labour unions, academia, civil society, and the financial sector. In general, the feedback has been mostly positive, as greater sustainability and new opportunities in the green economy are viewed favourably. Some, in fact, see the BCAs as a way to accelerate much-needed change in the measurement and reduction of emissions.
There are, however, some concerns. These include the need to finance the new technologies, training, etc to become compliant with robust national carbon policies, and the potential displacement of workers from the traditional, carbon-heavy industries.
Earlier this year, Dr Mohan and participants from around the world took part in a Global Stakeholder Dialogue hosted by the IISD to discuss BCA’s and the way forward. More such meetings are scheduled to be held. The aim is for developing countries to represent their interests and ensure that BCAs properly balance the need for stronger climate policies with their economic survival.
“IISD is holding three stakeholder dialogues between October 24, 2024 and March 2025 to produce a set of principles to guide governments on the design and implementation of BCAs globally,” says Dr Mohan. “The aim is to contribute to the development of fair, equitable, and effective BCAs that address the challenges of climate change and international trade.”
While representatives discuss BCA’s in international meetings, there are several steps Trinidad and Tobago should take to prepare for these policies in their export markets.
To see the full T&T BCA report, visit https://www.iisd.org/publications/report/border-carbon-adjustments-trinidad-and-tobago
