Calculated multibillion losses of Russia from the new European tax

If a new tax on carbon dioxide emissions is introduced in Europe, Russian exporters will lose from 3 to 4.8 billion dollars a year. This is stated in a study by the Boston Consulting Group (BCG) "How an EU Carbon Border Tax Could Jolt World Trade".

The idea of a carbon levy is popular with both European authorities and local businesses. Since 2005, many local producers have been forced to buy greenhouse gas emissions quotas and compete with foreign producers who do not have such obligations. The EU authorities expect the levy will help the EU meet the goals of the European Green Deal, an initiative to reduce the region's greenhouse gas emissions by 50 percent over the next 10 years and make Europe the world's first carbon-neutral continent.

The decision to introduce a carbon tax has not yet been finalized and is only being discussed in the European Union. The tax can be levied on goods that emit carbon dioxide into the atmosphere during the production. For example, it will affect the oil and gas industries, manufacturers of rolled metal products, importers of wood pulp, the mining and chemical industries, as well as mechanical engineering. BCG expects that the carbon levy will appear in Europe as early as late 2021 - early 2022.

Russia will be one of the countries most affected by the carbon levy. Its economy is highly dependent on exports to Europe (42 percent of its foreign supplies go to the EU). In addition, Russia ranks second after China in terms of carbon-intensive exports. According to the Organization for Economic Co-operation and Development (OECD), Russian carbon-intensive exports to the EU total about 150-200 million tons annually for all goods and services. If we do not take into account some of the goods and services that have not yet entered the European Emission trading scheme (EU ETS), for example, transport services, then the base subject to the new tax will be 100-160 million tons.

This will lead to an additional burden for exporters from Russia in the amount of 3 to 4.8 billion dollars per year. BCG's calculations assume that all emissions will be levied. Alternatively, the tax will apply only to the excess of emissions over the established benchmark. The largest tax burden will be on the oil and gas industry. It will be 45-53 percent (45-84 million tons of carbon dioxide) and will cost $ 1.4-2.5 billion per year. Analysts ranked metallurgical and mining companies in second place, including steel producers. They will account for 25-30 percent of the carbon levy, which will cost $ 0.4-0.6 billion. The third place was taken by fertilizer producers, pulp and paper and glass industries.

Severe consequences

The introduction of a carbon tax will increase the cost of Russian goods in several sectors at once and intensify competition in the European market. The greatest risks are borne by the energy and metallurgy sectors, which contain goods with low added value. Some Russian companies may even lose their share in the EU market due to emissions that are larger than those of competitors. Such a threat will hang over the producers of nitrogen fertilizers, for which the collection could become a protective duty, reaching 40-65 percent of the current export value.

"The introduction of a carbon tax will inevitably lead to an increase in the cost of Russian goods" Boston Consulting Group Research

In the oil industry, carbon levy can lead to a decrease in product profitability. The fact is that the production of Russian raw materials has twice the carbon emissions than fuel from Saudi Arabia. The collection will increase the cost of production for Russia by two dollars per barrel, and for Saudi Arabia by only one dollar. The rise in prices for Russian oil may result in the fact that European producers will start buying more raw materials from Saudi Arabia.

At the same time, the introduction of a fee for Russian steel will, on the contrary, allow it to squeeze out competitors. Local producers have a more competitive cost structure and a lower carbon footprint than China. Thus, in China, the cost of a ton of steel is $ 480-500 at the current market price of $ 530 per ton. If the PRC's carbon tax is about $ 55, the cost to China will exceed market prices. With an average cost price of $ 320-340 per ton of steel and a collection of about $ 47 per ton, Russian producers will be able to maintain low prices and a competitive advantage.

Analysts point out that Europe could exempt companies from countries with their own carbon pricing schemes, such as Australia, Canada or Japan, from tax if their governments enter into new trade agreements with the European Union or revise existing ones. Russian exporters will not be affected by this indulgence, since of the top 8 suppliers of goods to the EU, Russia and Turkey are the only ones that do not have internal mechanisms similar to the ETS, and there are no agreements on synchronization with the European system.

There is time

BCG analysts have called on the Russian government to begin preparations for the introduction of a carbon levy in Europe in five key areas. The first was the development of transparent rules, standards for measuring and reporting greenhouse gas emissions, as well as mechanisms and targets for reducing emissions in Russia. The experts called the creation of an internal mechanism for regulating the "carbon market" as the second step. We are talking about the introduction of a state carbon tax or the creation of a Russian analogue of the ETS, following the example of the EU. In this case, thanks to European regulations, subject to a number of conditions, mutual accounting of emissions is possible.

Also, the Russian government was called on to revise the system of emissions regulation, the formation of requirements and incentives, so that they comply with European or international standards and make it possible to synchronize them. Among other things, in preparation for the introduction of the tax, the authorities need to start subsidizing strategic industries and tie it to commitments to reduce emissions, as well as diversify exports. Companies, for their part, should begin to measure their carbon footprint, track the cost of carbon emissions and their impact on total costs, plan actions for different scenarios, and also get involved in the process of forming public policy in this area.

Previously, the assessment of Russia's losses from carbon collection was carried out by analysts at KPMG. In their opinion, in the worst-case scenario, the tax will be introduced in 2022, and it will affect both direct and indirect emissions (those that occur directly during the production of goods, and emissions from sources belonging to other organizations, but related to the exporter's activities). In this case, Russian companies will pay 50.6 billion euros by 2030. Under the baseline scenario, the tax will be introduced in 2025 and will only apply to direct emissions, which will cost Russian exporters 33.3 billion euros. The most positive scenario assumes the emergence of the tax in 2028 and a loss of $ 6 billion.

Source: https://lenta.ru/