Kovanda: EU Carbon Tariff to Harm Industry Sectors, Posing Threat to Employment

Bratislava, 27 October (TASR) - Emission allowances on imports, or the carbon tariff that is set to be launched as of 2026 with the introduction of the EU's Carbon Border Adjustment Mechanism (CBAM), will seriously harm several sectors of the economy, pose a threat to employment and create inflationary pressures, while countries outside the EU will remain largely unaffected, Lukas Kovanda, chief economist at Trinity Bank, has stated. Kovanda based his comments on an article published in the Energy Economics journal containing a detailed analysis of the impacts of the carbon tariff. "The carbon tariff was definitively approved in May 2023 as part of the Fit for 55 package. For example, cement production in the Czech Republic will fall by 15 percent due to the new import allowances, with steel production declining by 20 percent. In Slovakia, steel production is expected to drop by as much as 55 percent, while in Hungary, the production of fertilisers will decline by more than 40 percent," he explained, adding that this will have an adverse impact on employment in these sectors. According to Kovanda, inflationary pressures will also intensify in the affected countries due to more expensive construction materials and higher agricultural production costs. As a result, housing, food and even air travel will become more expensive, as aviation and related infrastructure heavily rely on steel consumption. Although the new import allowances are primarily aimed at countries outside the EU, these economies will paradoxically suffer much less than those in the EU, and especially those in central and eastern Europe. The reason is that, with the phasing-in of new import allowances, the EU will gradually stop allocating free industrial allowances under the ETS 1 system, said Kovanda. "Ending the free allocation of allowances under ETS 1 will push their price up, which will mainly hit the eastern EU countries, which are generally poorer and still carry the burden of energy-inefficient industrial production from the socialist era before the fall of the Iron Curtain," added Kovanda. jrg/df