EU is fuelling inequality in global green shift

Singapore can help Asian exporters minimise impact of looming tariffs that point to growing trade and climate protectionism

The European Parliament recently passed several landmark proposals as part of the European Union’s Fit for 55 climate master plan. The vote was timely as Europe confronts a record-breaking early summer heatwave, pointing to the effects of human-induced climate change.

One key piece of climate policy on the table was the carbon border adjustment mechanism (CBAM), which holds exporters accountable for the direct and embedded emissions of their goods as they enter the EU.

Coming into effect in January 2023, the so-called carbon border tax covers industries and commodities including iron and steel, refineries, cement and fertilisers, and was recently expanded to cover organic chemicals, plastics, hydrogen and ammonia.

Though a tool to encourage climate action, the mechanism raises questions about emissions accountability. Crucially, it points to growing trade and climate protectionism that will critically disadvantage emerging economies in the Global South. Developing nations, those in Asia especially, should take note.

The United States has emitted more carbon than any other country and is responsible for 25 per cent of all historical emissions, followed by the EU and Britain, which are collectively responsible for 22 per cent. However, instead of taxing the largest cumulative emitters, the mechanism shifts the liability and places a new financial and administrative burden on commodityrich emerging economies, which are least responsible for today’s climate crisis.

The Commonwealth Secretariat found that South and Southeast Asian economies were significantly exposed to potential charges under the mechanism due to their reliance on EU trade.

As governments and businesses around the world wrestle with the impact of climate change, policies need to take into account the needs and realities of developing nations.

Within the Asia-Pacific, Singapore is playing a leading role in supporting emerging economies to remain competitive and CBAM-compliant.

Imagine this: as goods from the region pass through Singapore’s ports, the city state can offer services that enable Asean producers to certify and offset the carbon footprint of their goods before entering the EU. This could be done according to international standards. By providing the seal of approval that marks exports as carbonneutral throughout the entire supply chain, Singapore could enable producers, especially in countries lacking their own carbon tax schemes, to minimise the tariffs imposed on them once their products enter the EU.

By offering a private-sector solution deployed at scale, Singapore can help Asian producers mitigate the challenges posed by the mechanism. The CBAM, while striving to accelerate change, fails to take into account that we can only achieve net-zero carbon if we work together in a fair way. The EU should rightfully recognise the meaningful work being done in Singapore to enable reputable and reliable carbon verification.

As it stands, the EU’s latest initiative only exacerbates growing inequality in the global green transition. Rather than leaning towards veiled protectionism and replicating structural and economic inequalities in climate policy, the world deserves something better and Asia is primed to lead the way.

Dr Bo Bai is executive chairman and co-founder of Metaverse Green Exchange