Figure 1.1. EU CBAM Implementation Timeline
BCA is a trade policy tool, usually implemented in the form of import duties or tax adjustments, aimed at ensuring fair competition among high-emission sectors. The main objective of the EU CBAM is to limit the risk of carbon leakage due to differences in the stringency of carbon pricing policies between the EU and its trading partners.
CBAM officially took effect on October 1, 2023, starting with a transitional period lasting until December 31, 2025. During this phase, importers are only required to report the emissions embodied in imported goods and do not yet have to fulfill financial obligations. From January 1, 2026, CBAM will enter its fully implemented phase, where financial obligations will be applied through the purchase and surrender of CBAM certificates. By 2034, the EU's CBAM will complete its implementation roadmap, when 100% of emissions associated with regulated goods must be offset by CBAM certificates and the free allocation mechanism within the EU ETS will be completely phased out.
2. Current status of Vietnam’s export market for carbon-intensive products
Figure 2.1 illustrates the trend in EU imports of carbon-intensive products from Vietnam between 2018 and 2024, broken down by sector. Overall, the total import value has fluctuated but shown an increasing trend over time, rising from about $1.09 billion in 2018 to approximately $3.08 billion in 2024. After a decline in the 2019–2020 period, import value surged from 2021 before peaking in 2022. A moderate decrease was recorded in 2023, followed by a slight recovery in 2024, coinciding with the EU's CBAM transitional phase. In terms of sector structure, iron and steel accounted for the largest share, consistently staying above $2.7 billion/year in the 2022–2024 period. Meanwhile, aluminum, cement, and fertilizer occupied smaller shares and experienced greater fluctuations; aluminum rapidly increased then decreased, cement gradually declined, and fertilizer saw a sharp rise in 2022 before falling back.
Figure 2.2 shows that approximately 52.9% of the global import value for Vietnam's carbon-intensive products is concentrated in a group of major markets, while the remaining 47.1% is distributed among other partners. The EU is the largest importing market, accounting for 17.6%, followed by the United States (14.8%), Mexico (6.4%), India (4.9%), South Korea (4.7%), and Malaysia (4.7%). Several other major economies such as Italy, Spain, Japan, and Canada also hold significant proportions. This indicates that Vietnam's exports of carbon-intensive products are closely tied to large economies, especially the EU and the United States.
Figure 2.3 shows that Vietnam's low-carbon competitiveness in the CBAM-affected sectors still varies significantly across industries. Specifically, aluminum is the only sector with a relative advantage, as its carbon intensity is lower than the global average and lower than some major markets. Conversely, cement and iron and steel have significantly higher carbon intensity compared to the global average and many trading partners, indicating a greater disadvantage against mechanisms like CBAM. For fertilizers, Vietnam's carbon intensity is close to the global average but still less competitive than the EU, the United States, the United Kingdom, and South Korea. This result suggests that the impact of CBAM-like mechanisms on Vietnam's exports depends not only on market size but also significantly on the difference in carbon intensity between Vietnam and its partner countries.
3. Potential adaptation of BCA concept by non-EU countries
Figure 3.1. Prospect of BCA adoption by non-EU countries
In addition to the European Union, many major economies are considering or preparing to implement CBAM-like mechanisms, indicating a spreading trend of carbon border adjustment tools in international trade. The United Kingdom is expected to apply CBAM from 2027, the United States is proposing mechanisms such as the Clean Competition Act, while Canada, Australia, and Japan are also studying similar tools. This trend reflects the increasing importance of the carbon factor as a competitive criterion in global trade. However, the approaches differ among nations; China and South Korea currently prioritize domestic carbon pricing mechanisms in the short term. Overall, the proliferation of CBAM-like mechanisms suggests that carbon pressure will expand to more markets, increasing risks and compliance costs for Vietnamese exporting enterprises.
4. Impact Assessment on Carbon-Intensive Manufacturing Enterprises
Figure 4.1. Impact assessment of BCA on Vietnam from selected countries & regions
The assessment examines the impact of the EU's CBAM, as well as similar carbon border adjustment mechanisms that might be established in other major economies like the United States, China, the United Kingdom, and South Korea. The factors considered include: (1) Vietnam's current export structure to the aforementioned markets for carbon-intensive products; (2) the carbon intensity of carbon-intensive products produced by Vietnamese enterprises compared with equivalent products manufactured in the above-mentioned markets; and (3) the design of the BCA in major economies.
The results show that the impact of BCA varies across markets, with the EU and the United States creating the greatest pressure as they are both important export markets and are inclined to adopt comprehensive mechanisms. The United Kingdom is also implementing CBAM on a slower timeline, while China and South Korea are less likely to adopt it in the short term and are mainly focused on responding to existing impacts.
Given the increasing trend of border carbon adjustment mechanisms, especially the EU's CBAM and the potential for similar mechanisms to emerge in many major economies, proactively developing adaptation solutions will not only help minimize short-term trade risks but also lay the foundation for Vietnam's green transition process. From this, some key recommendations for Vietnam can be considered as follows:
- Diversifying trade partners: Expand and diversify export markets to reduce reliance on CBAM-implementing economies, thereby distributing the risk from new carbon barriers.
- Determining carbon intensity: Proactively inventory and verify emissions to accurately determine carbon intensity, avoiding the application of unfavorable default values and increasing financial obligations.
- Conducting risk assessment and scenario planning and developing carbon reduction strategies: Businesses need to assess the financial and operational impact of CBAM, and simultaneously develop appropriate response scenarios and emission reduction roadmaps.
- Investing in innovation and low-carbon technologies: Increase investment in clean technology, improve energy efficiency, and utilize renewable energy to reduce emissions and enhance competitiveness.
- Participating in industry collaboration initiatives: Promote coordination within supply chains and industry associations to share data, experience, and resources, thereby reducing compliance costs and enhancing data reliability.
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