CBAM Challenges and Opportunities: A Case Study of the Brazilian Fertiliser Sector

Carbon pricing is one of the most effective instruments available to guide economies toward low-emission trajectories. Despite the increased introduction of this instrument, the International Monetary Fund (IMF) emphasises that carbon pricing poses several risks for carbon-intensive sectors. These risks are especially material for countries that do not yet have carbon pricing instruments in place. In this context, the implementation of the EU Carbon Border Adjustment Mechanism (CBAM), which started its first phase in October 2023, is a key initiative to observe. It covers the emission-intensive sectors of cement, aluminium, fertilisers, power energy production, iron and steel, and is designed to function in parallel with the EU's Emissions Trading System (EU ETS), to mirror and complement its functioning on imported goods. For non-EU competitors that are not subject to the same environmental/climate standards and export to Europe, it is a major challenge. According to a study developed by the United Nations Conference on Trade and Development, G20 countries are among the most vulnerable to CBAM, including Russia, China, Turkey, India, Brazil, the US, etc. This policy brief sheds light on the Brazilian fertiliser sector as an example to assess (i) the challenges and opportunities resulting from CBAM with a special focus on the promotion of social inclusion and food security, and ii) the specific opportunities and challenges for Brazilian SME's in this sector and its supply chain. The assessment results are discussed in terms of the relevance of the group of impacted G20 countries. Recommendations for action by the G20 group and the finance and sherpa tracks to increase climate-ambitious and positive distributional impacts of CBAM will be elaborated.

Santos, Luan, Carolina Grangeia, Elisabeth Hoch and Oliver Schenker (2024), CBAM Challenges and Opportunities: A Case Study of the Brazilian Fertiliser Sector , Mannheim