VIETNAM NATIONAL UNIVERSITY, HANOI VIETNAM JAPAN UNIVERSITY NGUYEN VIET CAN ASSESSMENT OF THE EU’S CARBON BORDER ADJUSTMENT MECHANISM (CBAM) IMPACTS ON VIETNAM’S IRON AND STEEL SECTOR MASTER’S THESIS VIETNAM NATIONAL UNIVERSITY, HANOI VIETNAM JAPAN UNIVERSITY NGUYEN VIET CAN ASSESSMENT OF THE EU’S CARBON BORDER ADJUSTMENT MECHANISM (CBAM) IMPACTS ON VIETNAM’S IRON AND STEEL SECTOR MAJOR: CLIMATE CHANGE AND DEVELOPMENT CODE: 8900201.02QTD RESEARCH SUPERVISOR: PROF. TAMURA MAKOTO Hanoi, 2023 PLEDGE I assure that this thesis is the result of my own research and has not been published. The use of other research’s results and other documents must comply with the regulations. The citations and references to documents, books, research paper, and websites must be in the list of references of the thesis.
Author of the thesis Nguyen Viet Can ACKNOWLEDGEMENT First, I would like to express my sincere gratitude and appreciation to my supervisor Prof. Makoto Tamura for his invaluable guidance, support, and encouragement during my study in the Master’s Program in Climate Change and Development (MCCD) at Vietnam-Japan University and the completion of the thesis. His expertise, deep insights, and constructive feedback have greatly contributed to the success of my research project. Second, I would like to thank my colleagues at Energy and Environment Consultancy Joint Stock Company for their valuable support, cooperation, and inspiration during my study, especially their permission to use the data for this thesis.
Their professionalism, dedication, and contribution in greenhouse gas emission reduction in Vietnam have motivated me to pursue a career in this field. Furthermore, I am also grateful to my classmates in MCCD6 for their collaboration, friendship, and sharing of ideas and experiences. Their diverse perspectives and contributions have widened my horizons and enriched my learning experience. Last but not least, I would like to acknowledge the immense support and love from my family and friends who have always been there for me and cheered me up through ups and downs.
Thank you all for your kindness and generosity! TABLE OF CONTENTS List of tables. i List of figures. ii List of abbreviations. iii Chapter 1 : Introduction.1 Climate change and carbon pricing and CBAM.2 The rationale of the research.3 Research questions and objectives.4 Structure of the thesis.
5 Chapter 2 : Literature review.1 Overview of the EU’s CBAM.1 What is CBAM?.3 CBAM implementation timeline.4 How CBAM works.2 Research on the impacts of CBAM.5 Research on the impacts of CBAM in the world.6 Research on the impacts of CBAM in Vietnam.3 Overview of Vietnam’s carbon pricing policies.4 Iron and steel sector in Vietnam.3 Technology and GHG emissions by the sector.4 GHG emission mitigation for iron and steel production in Vietnam’s updated NDC in 2022.5 Challenges faced by the steel sector in Vietnam on its decarbonization pathway. 21 Chapter 3 : Methodology and data.2 Methodology for the calculation of carbon intensity of the iron and steel sector in Vietnam.3 Methodology for scenario establishment.2 Data collection process.1 Data on energy consumption and production output of the steel sector in Vietnam.2 Data on production, export and carbon price in the EU and other countries.33 Chapter 4 : Results and discussion.1 Results the calculation of carbon intensity of the iron and steel sector in Vietnam.2 Comparison of Vietnam’s iron and steel sector’s carbon intensity with others.1 Comparison with the world average.2 Comparison with EU average.3 Comparison with EU prominent trading partners for iron and steel products .3 CBAM cost and competitiveness of steel sector in Vietnam under BAU scenario.4 CBAM cost and impacts on steel sector in Vietnam under NDC and Ambitious scenarios.5 Strategies for steel companies in Vietnam.6 Recommendations for the steel sector and policymakers in Vietnam.1 Summary of main findings.2 Limitations and suggestions for further studies. 50 Appendix 1: Questionnaire form (English translation). 57 Appendix 2: Interface of the calculation tool.60 Appendix 3: List of emission factors.
62 Appendix 4: Calculation of the potential CBAM payments and impacts.64 Appendix 5: Matrix of learning results and outcomes for the master’s thesis.66 [TNN1] LIST OF TABLES Table 1-1: Research objectives, tasks, corresponding outputs and outcomes.4 Table 2-1: Vietnam’s steel production outputs period 2017-2021. 15 Table 2-2: Mitigation measures for the steel sector in Vietnam’s updated NDC 2022. 19 Table 3-1: Summary of parameters in scenarios. 29 Table 3-2: List of companies answering the survey questionnaires.
31 Table 3-3: Coverage of the returned questionnaires. 33 Table 4-1: Results of the GHG accounting for companies providing full data.34 Table 4-2: Comparison of the carbon intensities between Vietnam’s steel and the world average values. 36 Table 4-3: Comparison of emission intensities between Vietnam and EU.37 Table 4-4: Comparison of emission intensities between Vietnam and EU’s main trading partners for steel products. 38 i LIST OF FIGURES Figure 2-1: CBAM scopes (covered products, emissions, and types of GHGs).
9 Figure 2-2: Phase-out of free EUA and phase-in of CBAM and its implementation timeline. 9 Figure 2-3: Share of export markets of Vietnam’s steel products in 2022. 16 Figure 2-4: Export of steel products from Vietnam to the EU by volume (million tons) and value (billion USD). 17 Figure 3-1: Logical framework of the thesis.
24 Figure 3-2: Carbon intensity of Vietnam's power grid period 2017-2021. 26 Figure 3-3: Determinants of CBAM certificate price. 27 Figure 4-1: Competitiveness loss index of Vietnam's steel products under CBAM (2026-2034). 39 Figure 4-2: Current carbon prices in China, South Korea, and Japan.
39 Figure 4-3: Competitiveness loss index of EU’s main trading partners for steel products under CBAM (2026-2034). 40 Figure 4-4: Competitiveness loss indices of Vietnam's steel products under different scenarios and other countries (2026-2034). 41 Figure 4-5: Share of total CBAM payments to total export value of steel to the EU. 42 Figure 4-6: Share of total CBAM payments to total export value of Vietnam's steel sector.
42 ii LIST OF ABBREVIATIONS ASEAN Association of Southeast Asian Nations AR Assessment Report BAU Business-As-Usual BF-BOF Blast furnace-basic oxygen furnace CAGR Compound Annual Growth Rate CBA Carbon border adjustment CBAM Carbon Border Adjustment Mechanism CCR Climate change response CGE Computable General Equilibrium CO2 Carbon dioxide Co. Company limited COP Conference of the parties EAF Electric arc furnace EF Emission factor ERCST European Roundtable on Climate Change and Sustainable Transition ETS Emission trading scheme EU European Union EU ETS EU's Emission Trading scheme EUA EU ETS allowances EVFTA EU-Vietnam Free Trade Agreement GDP Gross domestic product GHG Greenhouse gas GSO General Statistics Office HRC Hot rolled coil IF Induction furnace IPCC Intergovernmental Panel on Climate Change ISO International Organization for Standardization JSC Joint stock company LDC Least developed country LEP Law on Environmental Protection MOF Ministry of Finance MOIT Ministry of Industry and Trade MONRE Ministry of Natural Resources and Environment N2O Nitrous oxide NDC Nationally Determined Contribution OECD Organisation for Economic Co-operation and Development PFCs Perfluorocarbons iii UNFCCC United Nations Framework Convention on Climate Change USA United States of America VGGS National Green Growth Strategy VNEEP National Energy Efficiency Program iv CHAPTER 1 : INTRODUCTION 1.1 Climate change and carbon pricing and CBAM The sixth Assessment Report of the International Panel on Climate Change (IPCC) or the AR6, like other previous ARs, has once again confirmed climate change is human- induced and beyond natural climate variability which already has adverse impacts on human and natural systems with increasing adverse impacts in magnitude, frequency, and intensity (IPCC, 2022). In the same year, World Economic Forum ranked the risk of climate action failure as the gravest threat to humanity (World Economic Forum, 2022). It is therefore demanding that humankind to take action globally to reduce greenhouse gas (GHG) emissions, the direct cause of climate change, to mitigate the impacts of climate change.
In response to the urgent need to tackle climate change, in 2015, for the first time in human history, all countries in the world, both developed and developing, agreed with each other to aim at keeping the global temperature well below 2 degrees Celsius above pre-industrial levels, with a goal to limit the increase to 1.5 degrees Celsius in a legally binding agreement on climate change (United Nations, 2015). In 2021, 197 countries reached an alignment on the Glasgow Climate Pact to accelerate global action on climate change at COP26 in Glasgow, Scotland. Accordingly, many countries have committed to achieving the Net-Zero target and Paris Agreement goals, including Vietnam (UNFCCC, 2021). In line with global mitigation efforts, many countries have accelerated their climate actions by applying carbon pricing instruments in the form of carbon taxes or emissions trading systems to reduce GHG emissions.
These policies are recognized as the best instruments on the grounds of effectiveness and cost-effectiveness when they internalize the social cost of GHG emissions and incentivize climate actions (Mooij et al. However, with all the carbon pricing policies and commitments mentioned above, it is not sufficient and possible to achieve the targets set in the Paris Agreement, especially when countries around the world are still not ambitious enough and taking unilateral climate actions (Net-Zero Tracker, 2022). As a side effect, the 1 differences in climate policies of countries and/or regions and also differences in the level of carbon prices lead to carbon leakage risk (OECD, 2014). Against this context, the European Commission proposed a carbon pricing policy called Carbon Border Adjustment Mechanism (CBAM) in 2021 to prevent carbon leakage and accelerate climate ambitions in the European Union (EU) while promoting emission reduction worldwide.
After long consultation and negotiation processes between stakeholders and legislative bodies of the EU, on 25 April 2023, CBAM has been approved to be a legally binding policy in the EU (European Commission, 2023).2 The rationale of the research According to European Commission, CBAM is a policy complementary to the EU’s Emission Trading Scheme (EU ETS). It requires importers of CBAM-covered goods to buy and surrender CBAM certificates based on the embedded emissions of the goods they import into the EU at a price equal to the weekly average price of EU ETS allowances (EUA). Initially, CBAM covers energy-intensive goods with a high risk of carbon leakage, including iron and steel, aluminium, cement, fertilizer, electricity and hydrogen (European Commission, 2023). On June 30, 2019, Vietnam and the EU entered into a Free Trade Agreement (called EU-Vietnam Free Trade Agreement or EVFTA), which was ratified by the European Parliament on February 12, 2020 and by the National Assembly of Vietnam on June 8, 2020 (European Commission, 2020).
EVFTA brings about significant economic benefits to both the EU and Vietnam. The agreement is expected to increase EU exports to Vietnam by 29% and Vietnam's exports to the EU by 18% by 2035, compared to a situation without the agreement (Vietnam Briefing, 2020). th Vietnam is the EU’s 15 trade-in goods partner and the EU’s most prominent trading th partner in ASEAN. In 2020, Vietnam was the 11 biggest exporter to the EU, with a share of 1.8 percent in the overall EU’s imports value (Eurostat, 2022).
Vietnam is expected to be among the countries most affected by the EU’s CBAM, especially if it is extended to other sectors in the future. In an assessment of countries’ relative risk levels in two different CBAM scenarios, Vietnam is listed as one of the countries most at risk besides Bosnia and Herzegovina, Algeria, Namibia, Madagascar, and Cambodia 2 when CBAM addresses only emissions-intensive sectors (Eicke et al. Another research also projected that Vietnam will be among the most vulnerable when USA, South Korea and Japan, which are Vietnam’s biggest export markets, adopt similar carbon pricing measures to reduce the CBAM impacts (Magacho et al. Among CBAM-covered goods in the initial CBAM phase that Vietnam exports to the EU, iron and steel products are at top in terms of both volume and value.
According to statistics from Vietnam General Statistics Office, Vietnam exported to the EU 1.6 million tons of iron and steel products in 2021, equivalent to USD 1.