Analysis of the implications of CBAM on Brazilian exports, competitive advantages, and strategic opportunities
In a historic move that redefines the intersection between international trade and climate action, the European Union has implemented the Carbon Border Adjustment Mechanism (CBAM). This is the first initiative of its kind on a global scale, designed to tax the carbon emissions embedded in imports. For Brazil, the ninth largest emitter of greenhouse gases in the world, this mechanism represents both a significant commercial challenge and a unique strategic opportunity 4 5 .
CBAM is not just another tariff barrier; it is an innovative policy instrument that forces exporting nations to confront the carbon footprint of their industries.
As one of the greenest economies on the planet, thanks to its predominantly renewable energy matrix, Brazil is uniquely positioned to transform this European regulation into a competitive advantage, but the path requires urgent adaptations and strategic investments.
Brazil's renewable energy matrix gives it a unique competitive advantage in adapting to CBAM compared to other major exporters.
CBAM is essentially a carbon border tax on carbon-intensive products imported into the European Union. Legislated in May 2023 as part of the "Fit for 55" package, the mechanism aims to achieve two fundamental objectives:
The implementation of CBAM follows a phased approach:
From July 2024, the EU requires "real data" on how imported goods were produced 4 5 9 .
October 1, 2023 - December 31, 2025
Importers must report embedded emissions quarterly without financial adjustment. Data collection to refine methodology.
Initially, CBAM focuses on six carbon-intensive sectors particularly exposed to international trade 5 7 :
92% of Brazilian exports affected by CBAM
3% of Brazilian exports affected
Cement, fertilizers, hydrogen, electricity
| Phase | Period | Main Obligations | Consequences for Non-compliance |
|---|---|---|---|
| Transition | Oct 2023 - Dec 2025 | Quarterly reporting of embedded emissions | No direct financial cost, but corrections required |
| Definitive | From Jan 2026 | Purchase of CBAM certificates; Annual declaration | Fines of €10-50 per tonne of unreported emissions |
Analysis by the National Confederation of Industry (CNI) indicates that CBAM would impact more than US$3 billion of Brazilian exports to the EU in 2023, with overwhelming concentration in the iron and steel sector (92%) 7 .
UNCTAD estimates suggest that Brazilian steel could face a tax of US$3.3 per tonne exported to the EU 4 .
Paradoxically, Brazil may be among the best positioned countries to adapt to CBAM. Thanks to its energy matrix largely based on renewable sources, especially hydropower, Brazilian industry already operates with lower carbon intensity than many competitors 4 .
Studies cited indicate that the implementation of CBAM could even result in a surplus in Brazil's trade balance for energy-intensive products, in addition to creating more than 160,000 jobs 4 .
| Sector | Percentage of Exports to EU Covered | Competitive Advantages/Disadvantages |
|---|---|---|
| Iron & Steel | 92% | Local raw materials; Mostly renewable energy; Production technology to improve |
| Aluminum | 3% | Clean energy for electrolysis; Competitive energy cost; Challenging logistics |
| Others | 5% | Depends on specific emissions profile of each subsector |
Sandbag conducted modeling examining CBAM's impact on the three largest East Asian economies - China, Japan and South Korea - which, like Brazil, are major exporters to the EU.
The study projected annual CBAM rates in a full pricing scenario (from 2034) and compared them with the value of bilateral trade, then calculated how robust carbon pricing systems in these countries could reduce burdens 3 .
The numbers are revealing: in a full pricing scenario, Chinese imports would generate approximately €1 billion annually in CBAM revenues (0.43% of China-EU trade value), while South Korea would pay €503 million (1.74% of trade value) and Japan €285 million (0.96%) 3 .
| Country | CBAM Charge Without Domestic Pricing | CBAM Charge With Domestic Pricing (€20/ton) | Reduction |
|---|---|---|---|
| China | €1,000 million | €760 million | 24% |
| South Korea | €503 million | €377 million | 25% |
| Japan | €285 million | Data not specified | Data not specified |
This modeling clearly demonstrates that countries with robust carbon pricing systems can retain significant revenues that would otherwise flow to European coffers 3 .
Adapting to CBAM requires companies to develop specific capabilities for measurement, reporting and verification. The essential "toolkit" includes:
Infrastructure to measure and report direct and indirect emissions according to EU methodology 7 .
Mechanisms to track emissions embedded in inputs acquired from suppliers.
Audit services to validate emissions calculations, with companies like DNV offering verification services 9 .
Methodologies to calculate financial exposure to CBAM under different carbon price scenarios.
Technologies to optimize energy consumption and increase renewable sources in production processes.
The EU's Carbon Border Adjustment Mechanism represents a turning point for the relationship between international trade and climate. For Brazil, the implications are profound: while presenting immediate compliance challenges and additional transaction costs, CBAM also offers a historic opportunity to capitalize on the country's clean energy matrix and consolidate a leadership position in low-carbon industrial production.
Success will depend on a coordinated response between the private sector and government.
Companies will need to urgently invest in robust carbon measurement systems, supply chain transparency and decarbonization technologies. The government, in turn, faces the imperative to accelerate the creation of a regulated carbon market that allows Brazilian companies to retain revenues that would otherwise be paid to the EU.
In a world moving inexorably toward decarbonization, CBAM could be the catalyst that transforms Brazil's natural green advantage into a lasting competitive advantage in global markets. The choice is clear: adapt proactively or risk being left behind in the new climate economy.