Introduction
The introduction of taxes on carbon dioxide emissions represents one of the regulatory instruments aimed at mitigating greenhouse gas (GHG) emissions to combat climate change. These taxes are designed to incentivize companies and individuals to reduce their emissions and adopt more efficient technologies. The primary rationale behind the use of carbon emissions taxes lies in their environmental effectiveness at relatively low costs, thereby contributing to the increased social and political acceptability of climate policies (Baranzini et al. Reference Baranzini, Van den Bergh, Carattini, Howarth, Padilla and Roca2017). However, the implementation of such taxes may give rise to various issues, including the determination of tax rates, transparency and accuracy issues in measuring emissions, impacts on competitiveness, defining transitional periods and innovation support, as well as questions of consistency with other measures. The issue of taxing carbon emissions is becoming increasingly pertinent in the context of global efforts to combat climate change. Many countries and regions are currently considering the introduction of tax mechanisms to curb GHG emissions, which is one way of promoting sustainable production and consumption (Ghazouani et al. Reference Ghazouani, Xia, Ben Jebli and Shahzad2020, Ventsova & Safonov Reference Ventsova and Safonov2021, Safonov Reference Safonov, Kolotov and Bezaeva2023).
Currently, the European Union (EU) continues to operate a system whereby producers within the EU must acquire allowances for the carbon dioxide emissions of their production (the EU Emissions Trading System; EU ETS). Meanwhile, the Carbon Border Adjustment Mechanism (CBAM) ensures that these producers will no longer face competitive disadvantages when importing from third countries with lower climate standards (Customs Administration of the Netherlands n.d.). The EU CBAM is linked to a significant increase in ambitions within the EU ETS, with implications for the future trajectory of carbon emission prices and the allocation of free allowances for European producers (KPMG 2023). The CBAM has become one of the first instruments of tax regulation in international trade to achieve climate goals. The main idea of the CBAM is that all exporters must pay a proportionate fee for carbon emissions similar to EU companies. However, with the new EU initiatives, more questions arise regarding the consistency of such mechanisms and the practices of their implementation within the rules of the World Trade Organization (WTO).
The introduction of a carbon tax in the context of WTO practices may encounter various ethical, political and normative conflicts of interest. One potential problem with the CBAM is that it should be considered a trade barrier according to WTO trading rules (Le Blank & de Leon Mendoza Reference Le Blank and de Leon Mendoza2023). Certainly, the implementation of new European initiatives must comply with WTO rules to avoid potential trade conflicts. The introduction of a carbon tax, although pursuing noble goals (i.e., to reduce carbon dioxide emissions worldwide and make the environment cleaner), may also be viewed as a mechanism to protect European markets (Leonelli Reference Leonelli2022).
These issues are relevant for Kazakhstan, which has long been a significant supplier of goods to the EU, including goods from the mining and metallurgical industries and building materials (Shestak & Postoeva Reference Shestak and Postoeva2022, Zholdayakova et al. Reference Zholdayakova, Abuov, Zhakupov, Suleimenova and Kim2022). In 2023, Kazakhstan’s exports to the EU amounted to USD 41.4 billion, of which USD 388.7 million were carbon-intensive goods such as oil, coal, ferroalloys and uranium (Tokanova Reference Tokanova2024). According to the European Commission, among the industrial sectors of Kazakhstan, the metallurgy and aluminium industries will suffer the most from the introduction of the CBAM, accounting for c. 1.7% of total exports to the EU in 2022 (Qazaq Green Reference Green2024). Against the backdrop of global efforts to decarbonize, Kazakhstan is also trying to implement national initiatives to meet the requirements of counterparties. One of the mechanisms aimed at regulating GHG emissions at the national level is the ETS; at the regulatory level, this system is enshrined in the country’s Environmental Code. Studies of Central Asian countries note a lack of literature on the role of carbon taxes and environmental taxes in solving energy and environmental problems (Safonov et al. Reference Safonov, Danilova, Ermakov and Vorobyov2019, Aubakirova et al. Reference Aubakirova, Isataeva, Mazhitova and Togaibaeva2023, Reference Aubakirova, Biryukov, Isatayeva and Mazhitova2024). Moreover, due to the novelty of implementing the CBAM, research in this area is even scarcer. Current studies concerning the implementation of carbon taxation worldwide within the context of international trade relations focus on various aspects. The objective of this study is to address the challenges of implementing a carbon tax, as well as related mechanisms and governmental initiatives such as border carbon taxation within the framework of the WTO. These problems are examined from the perspective of potential obstacles facing Kazakhstan and the prospects of revising specific legal mechanisms within the state.
Materials and methods
The documentary and analytical basis of this research comprises EU acts related to the taxation of carbon emissions into the atmosphere (Regulation (EU) 2023/956 of the European Parliament and of the Council of 10 May 2023 establishing a carbon border adjustment mechanism, Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC), relevant WTO acts (including the Agreement on Technical Barriers to Trade), as well as analytical documents and reference materials from non-governmental organizations and international auditing firms (including the Peterson Institute for International Economics and Deloitte).
By applying a political and legal analysis, the research provides an overview of the implementation issues of the carbon tax, the problems of implementing the border carbon tax using the example of the CBAM introduced in the EU in 2023 and related mechanisms and governmental initiatives (e.g., the border carbon tax) within WTO practices. The method applied in the work is based on a systematic approach to the study and understanding of various aspects of political and legal systems. The method is aimed at studying the legal regulation and actions of government bodies in the context of considering certain legal relations. Using this methodological tool, an analysis of the implementation of the considered countries’ political decisions at the regulatory level was conducted. Questions arising or potentially arising in connection with the introduction of the CBAM or similar mechanisms were also considered in political, normative and ethical dimensions. As these issues are pertinent to Kazakhstan as well, the mentioned problems are examined from the perspective of potential trade barriers and complexities facing the country.
Results
In September 2023, the European Commission announced the commencement of a transitional period in the application of the first regional cross-border instrument in carbon taxation: the CBAM, imposing a carbon tax on goods entering the EU from third countries (Deloitte 2023). The magnitude of this tax will be determined by the ‘carbon content’ of goods, meaning the volume of carbon dioxide emissions generated during their production. According to official representatives of the European Commission, as of October 2023, the CBAM began to be applied in the transitional phase (Fig. 1). It is a key instrument of the EU in combatting carbon emissions and a central element in achieving the agenda by 2050 of achieving zero GHG emissions into the atmosphere (European Commission 2023). The CBAM is designed to promote the implementation of ‘climate policy’ in the EU and to prevent potential relocation of the production of goods to countries with less stringent environmental standards. Additionally, based on statements from official spokespeople of the European Commission, the CBAM is implemented within the framework of WTO rules as a measure aimed at encouraging the adoption of more environmentally friendly and reliable technologies in global industrial production. It is envisaged that the transitional period in the application of the CBAM, which commenced on 1 October 2023, will allow all importers supplying goods to the EU to familiarize themselves with the new rules and adapt to their practical implementation, as well as to adjust their strategies and internal policies related to the commercial–climate balance.
Sequence and timeline of the Carbon Border Adjustment Mechanism’s (CBAM) implementation (source: https://www.oneclicklca.com/eu-carbon-border-adjustment-mechanism/).
The carbon tax is intended to ensure the preservation of the competitiveness of products manufactured by EU enterprises that adhere to high environmental standards. This will prevent the displacement of such products from the European market by goods from countries where less attention is paid to the environment and where the use of outdated, carbon-intensive technologies may lower production costs. This rule also reduces the incentives for industrial enterprises to ‘escape’ from the EU in search of cheaper production, as the carbon tax offsets the potential price advantages of the final product produced outside the EU within the framework of less environmentally friendly production. As stated in the European Commission’s clarification, at the initial stage, the CBAM will only be applied to certain types of goods, such as cement, electricity, fertilizers, iron, steel, aluminium and hydrogen (Fig. 2). Importers supplying these goods to the EU will be required to report the level of carbon that entered the environment during production, although, at the transitional stage, this will not entail any financial penalties (European Commission 2023).
Emissions covered by the scope of the Carbon Border Adjustment Mechanism (CBAM) (source: https://www.eeas.europa.eu/sites/default/files/documents/2023/Carbon%20Border%20Adjustment%20Mechanism.pdf).
During the transitional phase of the CBAM’s implementation, from 1 October 2023 to 31 December 2025, affected companies are subject to reporting obligations without financial commitments. During this period, importers must identify and document direct and indirect emissions arising from the production of imported goods. This step alone may pose challenges for many companies, as the necessary technological solutions for registering and determining emissions in terms of their carbon dioxide equivalent are often lacking. Additionally, affected EU importers are required to prepare quarterly CBAM reports, providing information on the imported quantity of CBAM goods, direct and embedded emissions contained therein (reporting on embedded indirect emissions initially only applies to cement, electricity and fertilizers), as well as any carbon emissions taxes paid in the country of production (KPMG 2023). Consequently, there is an increasing opinion that the most complex aspect of CBAM reporting will be the assessment and later verification of carbon dioxide and other GHG emissions. In several cases, it will e necessary to assess not only emissions from the direct production of goods but also emissions from the production of raw materials and semi-finished products used in their manufacture (KPMG 2023).
According to European regulators, the aim of the CBAM is to eliminate the fiscal disparity between European producers, who are obligated to acquire GHG emissions allowances within the European system, and importers. However, the introduction of the CBAM has predictably faced criticism, primarily from beyond the EU. Economists from countries exporting to the EU continue to argue that the CBAM violates WTO principles and contributes to increased protectionist measures, thereby undermining the principles of the multilateral trading system (RBK 2023). WTO member countries enjoy broad autonomy in defining their environmental objectives. However, within the context of trade and the CBAM, two important questions arise concerning the principle of non-discrimination. The first question concerns whether the products under consideration will be deemed ‘like’. Then, if two products are recognized as ‘like’, the issue arises as to whether preferential treatment will be provided to domestic goods over imports. To address the first question, it is important to consider that, according to WTO rules, the analysis of the similarity between two products must be conducted on a case-by-case basis. Thus, the answer to the question of whether this treatment is discriminatory will depend on the specific rules for implementing the CBAM. In the second scenario, it is assumed that the CBAM, as a tool designed to complement rather than replace the EU ETS, will not become a new instrument of protectionism. Within the EU ETS, distinctions are already made between sectors within the EU, hence it can be argued that it is not a protectionist measure that could differentiate between EU production and imported goods.
To better understand the implications of implementing the CBAM, it is interesting to examine the potential impact of the proposed CBAM on the trading partners of the EU, including countries such as Türkiye, the UK, and China – countries where significant portions of their exports of CBAM-covered goods go to the EU. There is a well-founded opinion that the introduction of the CBAM will increase costs for EU importers, which, in turn, are likely to be passed on to consumers, especially due to the gradual phasing out of free allowances under the EU ETS. However, it is assumed that the overall impact on the exports of EU trading partners will not be significant. In developed countries, a significant reduction in exports is not expected overall, as they can implement less carbon-intensive production methods. As for developing countries, it is projected that they will face a decrease in exports covered by the CBAM of c. 1% or less (Le Blank & de Leon Mendoza Reference Le Blank and de Leon Mendoza2023).
The discussion regarding the compliance of the CBAM with WTO rules will unfold during the phased implementation of this system. The European Commission asserts that the CBAM has been developed according to WTO requirements and other international commitments; however, doubts are frequently being raised in this regard. Disputes over the CBAM appear inevitable, as they, to some extent, touch upon the foundations of WTO activity, particularly Article I (Most-Favoured-Nation Treatment), Article II (Tariff Schedules) and Article III (National Treatment) of the General Agreement on Tariffs and Trade (GATT). Additionally, the CBAM may run counter to the United Nations Framework Convention on Climate Change’s (UNFCCC) call for ‘common but differentiated responsibilities and respective capabilities (CBDR-RC)’ (Hufbauer et al. Reference Hufbauer, Schott, Hogan and Kim2022).
As an interim summary, several features regarding the implementation of the CBAM can be highlighted. The carbon border regulation mechanisms of the CBAM represent a tool aimed at reducing the carbon footprint of goods imported from countries that do not regulate their emissions. However, the implementation of the CBAM may encounter a range of problems and challenges in the context of the WTO. The main ones include:
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Trade barriers and discrimination: the CBAM may come under criticism for creating additional trade barriers, especially if the mechanism is seen as discriminatory against goods from certain countries. This could violate the principles of equal treatment and non-discrimination enshrined in WTO rules.
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Carbon footprint determination: one of the main challenges within the CBAM is the determination and measurement of the carbon footprint of goods. Developing objective and fair calculation methods is a complex task and may lead to disputes over the fairness and accuracy of measurements.
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Contradictions with WTO rules: the CBAM may create tensions with WTO rules, such as the principles of non-discrimination and most-favoured-nation treatment. This could lead to trade disputes and raise doubts about the compatibility of the CBAM with WTO rules.
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Ambiguity in the distribution of revenues: the issue of distributing funds collected using the CBAM may cause disputes between countries. Determining how to use these funds and how to fairly distribute the burden of emissions reductions may lead to conflicts of interest.
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Need for coordinated approaches: implementing the CBAM requires coordinated approaches and cooperation between countries. A lack of broad agreement could result in unequal competition conditions and tensions in trade relations. At the same time, it is important to understand that if countries outside the EU have or create their own carbon pricing policies, they may be able to avoid the carbon border tax in the EU and retain revenues for their own decarbonization projects.
Based on its international commitments under the CBAM, the EU must ensure that the mentioned mechanism is compatible with the EU’s international obligations under the WTO. This means that the mechanism should not discriminate against any specific country or violate the principles of free trade. The EU must also engage in constructive dialogue with its trading partners, including major emissions-emitting countries such as China and the USA, to ensure that the CBAM aligns with global climate goals and does not create unnecessary tensions or trade disputes. A range of international commitments is imposed on the EU within the climate agenda. Numerous international treaties and documents (including the Report of the United Nations Conference on Environment and Development (UN 1992a)) stipulate that a global consensus must be a prerequisite for adopting environmental measures that affect the entire world. However, in most cases, these documents do not account for differences in emissions standards in different countries, leading to potential political contradictions. Moreover, as can be inferred from the text of several global climate agreements (including the United Nations Framework Convention on Climate Change (UN 1992b)), developing countries should not bear the same burden of mitigating the consequences of climate change as developed countries. Ethical aspects of implementing the CBAM also encompass the issue of the so-called ‘tax shift’ – a change in taxation that eliminates or reduces one or more taxes and establishes or increases others while keeping overall revenue unchanged. In this case, the question arises as to who is entitled to dispose of the ‘released’ resources in the form of tax revenues. An alternative is considered to be the possibility of spending the funds on environmental or climate priorities, effectively directing resources towards preventing future climate change. Another option is to allocate resources to those who have been affected by climate change, effectively directing resources towards combatting existing or past climate change. However, this list of proposals is not exhaustive and can be expanded. Despite criticism, the CBAM enjoys broad support among both scholars and policymakers, with its proponents asserting that it is objectively necessary, implementable and has the potential to have a significant impact on emissions worldwide. Moreover, there are no apparent contradictions with WTO rules.
Against the backdrop of European initiatives, Kazakhstan is also considering the possibility of implementing an internal carbon tax. This information is reported by the media, citing the Ministry of Natural Resources of the country. Currently, a carbon tax is not provided for within the existing emissions trading system. However, in light of efforts to achieve carbon neutrality by 2060, the Ministry plans to consider the possibility of introducing a carbon tax for sectors not covered by regulation under existing mechanisms.
At the same time, the final decision on the timing and conditions for the introduction of such a tax will be made only after conducting an internal assessment of prospects and obtaining necessary analytical evaluations. According to preliminary data, Kazakhstan’s annual loss of export revenue due to the implementation of a carbon tax in the EU may exceed USD 250 million. Currently, it is noted that metallurgy is under threat. However, in the event of further expansion of the scope of the CBAM to include oil, these losses could increase several times over (Ishekenova Reference Ishekenova2023).
Currently, from a business perspective, the emissions trading system in the country is viewed as the most acceptable. However, in the face of a changing regulatory landscape, the adaptation of local enterprises to new rules may occur unevenly and encounter the same difficulties in ensuring production profitability as companies from abroad (Zhumadilova & Kozhikov Reference Zhumadilova and Kozhikov2022). In this context, the new conditions not only fail to incentivize large industrial companies to reduce carbon dioxide emissions but also deprive the local emissions trading system of the opportunity to become an effective market tool for regulating carbon emissions.
Taking into account the described challenges, Kazakhstan is considering the introduction of alternative measures to enhance its domestic emissions trading system starting from 2026, including the implementation of primary auctions (for the sale of carbon quota shares), increasing the annual reduction coefficient of the overall emissions limit, establishing a special carbon fund and undertaking other measures, typically of a non-fiscal nature. It is likely that the carbon regulation system will gradually transition from soft to more stringent measures, significantly impacting sectors of the economy related to energy production and goods for the domestic market. However, for Kazakhstan’s export-orientated economy, such steps are necessary to ensure stability in the domestic economy and to fulfil its climate commitments (Tulepbergenov & Kovalenko Reference Tulepbergenov and Kovalenko2023).
The local carbon tax will allow Kazakhstan to retain tax revenues domestically through the mechanism of the mutual recognition of the carbon regulation systems in the EU and Kazakhstan. Ultimately, it can be understood that the tax will affect businesses in one way or another; however, considering that the mechanism has not yet fully manifested itself either in the EU or in countries beyond its borders, assessing its effectiveness would be premature (Trubacheva & Masanov Reference Trubacheva and Masanov2021). Despite assurances from European economists that carbon pricing, particularly in the form of a GHG emissions tax, represents the most economically efficient method for reducing emissions compared to the quota mechanism, achieving a balance between industrial interests and environmental priorities for developing countries can be a more complex task than it appears at first glance. In this regard, it is fair to note that the main focus is primarily on the tax rate: currently, there are no clear ideas on how it should be determined and at what level it should be set. In addition, there is a lack of understanding regarding what criteria will be established and which sectors will either be exempt from taxes or subject to minimal taxation to maintain competitiveness in exporting products. A separate category can be allocated for the question of subsidizing certain types of production. However, the most important aspect is the question of how to incorporate into forecasts the likely reductions in emissions, especially when the results are not always obvious and in some cases even are contradictory. It is also important to consider how the introduction of such a tax will impact the country’s economic development – whether it will strengthen it or, conversely, weaken it (Cherednichenko et al. Reference Cherednichenko, Cherednichenko, Yesekina and Yesenova2023).
Discussion
In contemporary research focusing on fiscal mechanisms to reduce carbon dioxide emissions into the atmosphere (Newman Reference Newman2022), the decisions and policies of the EU related to carbon taxation are generally regarded as progressive and without better alternatives. As Mintz-Woo (Reference Mintz-Woo2023) aptly notes, from a moral standpoint, carbon emissions taxes are easily justifiable to lawmakers under ideal circumstances. One reason as to why this is important is that even in contexts where carbon emissions taxes are politically unfeasible, this is not a reason to refrain from considering them as ideal policies in other contexts, especially when we consider examples from countries where they have yielded relatively successful outcomes (Mintz-Woo Reference Mintz-Woo2023). However, in the context of the CBAM, such taxes are increasingly viewed as a form of protectionism. Although EU authorities state that the tax will comply with WTO rules (European Commission 2023), researchers argue that conflicts on this issue are likely to arise in one way or another. Competent authorities of different countries may, on multiple occasions, turn to the WTO for clarification in the interests of companies registered in their territories (Newman Reference Newman2022). At the same time, carbon emissions taxation is an area that has not yet been fully tested for compliance with WTO rules, and the EU will need to ensure the equal treatment of both foreign products and those produced within the EU (Martinez Reference Martinez2023).
Within the discourse, legitimate questions arise regarding compatibility with the CBAM focusing on the complexities of taxing emissions that arise as byproducts of goods production rather than taxing the goods themselves (Nedumpara & Pradeep Reference Nedumpara and Pradeep2021). Furthermore, many countries lack institutions or governmental bodies tasked with monitoring industrial emissions. This may pose challenges for them in accurately measuring carbon dioxide emissions and subsequently verifying these data to the EU (Newman Reference Newman2022).
There is also the opinion that some countries may perceive border carbon taxes as protectionist ‘tariffs’ rather than as an attempt to address global emissions and climate change. This could eventually lead to trade conflicts and the erection of protective barriers by other countries, complicating the EU’s efforts to conclude free trade agreements (Lowe Reference Lowe2019). Additionally, a hypothetical situation might arise in which companies object to disclosing details of their operations, including locations and emission volumes (Newman Reference Newman2022).
In individual studies, conclusions have been drawn indicating that commitment to new fiscal instruments, such as carbon taxation, is present in countries demonstrating a high degree of trust in their governments and political systems (Criqui et al. Reference Criqui, Jaccard and Sterner2019). Confidence in the government and its ability to manage budgetary revenues in a transparent, fair and efficient manner is key to the acceptability of environmental taxation-based policies. Sweden is cited as a positive example in this regard. However, in Canada and France, lack of trust in the government combined with an evident aversion to social inequality lead to strong resistance to any measures that may harm household purchasing power. This has contributed to pointed debates regarding the introduction of a carbon tax. Overcoming for this challenge is probably the most crucial problem facing the adoption of such tax policies (Criqui et al. Reference Criqui, Jaccard and Sterner2019).
Thus, contemporary academic debates increasingly focus not so much on the question of carbon taxation per se, but rather on issues related to the implementation of border carbon adjustment mechanisms. These discussions primarily revolve around two main concerns: (1) doubts regarding the effectiveness and feasibility of such a tax and (2) considerations regarding its potential impact on other countries and global trade as a whole (Newman Reference Newman2022). The main argument posits that border carbon adjustment could undermine global trade and possibly even trigger trade conflicts, and its compliance with WTO rules is also questioned. On the other hand, proponents argue that this mechanism could help prevent carbon leakage and promote the adoption of additional environmental standards worldwide (Newman Reference Newman2022). The European Commission associates the risk of carbon leakage with the fact that many international partners of the EU do not share its climate ambitions. According to the Commission’s assessment, this risk is driven by two factors: (1) the relocation of production from the EU to countries with less ambitious GHG emissions reduction targets and (2) the substitution of EU products with more carbon-intensive imports (Wettestad Reference Wettestad, Rayner, Szulecki, Jordan and Oberthur2023).
While European regulations may be perceived as discriminatory overall, there is currently no compelling evidence to suggest that the decision to introduce them was intentionally protectionist. In support of this, it is argued that the full implementation of the CBAM is a complex process requiring compromises and political maturity, which European legislators understand. Therefore, at the initial stage of its implementation, the aim is to gather the necessary information to assess whether there is a need for any further actions and necessary adaptations. Thus, the anticipated consequences of the CBAM for the trading partners of the EU may not be as detrimental as they may have first appeared (Le Blank & de Leon Mendoza Reference Le Blank and de Leon Mendoza2023). As a compromise, the creation of so-called ‘carbon clubs’ appears to be a promising solution (Mintz-Woo Reference Mintz-Woo2023). These groups could represent coordinated alliances of countries, and joining such groups would require compliance with certain criteria for minimum carbon emissions prices.
Regarding Kazakhstan, even though the introduction of a carbon tax is currently considered a distant prospect, the transition to strategies taking into account the existence of a border tax seems inevitable. Kazakhstan is likely to have to adapt to this trend – if not for environmental reasons, then for reasons of foreign trade expediency. At the same time, a deferral within the framework of the CBAM for Kazakhstan, as well as for other countries outside the EU, is highly unlikely. The essence of the CBAM lies in ensuring equal conditions within the EU market, so any weakening or deferral for Kazakhstan would set a precedent for other market participants. Therefore, to avoid market losses, the introduction of a carbon tax in Kazakhstan is likely to be the only workable solution. The revenues from the carbon tax in Kazakhstan can be used for decarbonization in relevant sectors (Alpysbayeva et al. Reference Alpysbayeva, Bakdolotov and Zhanakova2021, Reference Alpysbayeva, Shuneev, Bakdolotov, Beisengazin, Tautenov and Zhanakova2022, Niyazi Reference Niyazi2024). A targeted reduction in carbon emissions may become the optimal strategy for exporters and the government of Kazakhstan.
At this stage, due to the novelty of many tax mechanisms, comprehensive recommendations from international donors providing expert technical support to Kazakhstan on carbon dioxide emissions taxation issues in connection with the adoption of the CBAM are lacking. At the same time, experts from the firm Ernst & Young in the field of sustainable development recommend gradually adapting businesses to the prospects of the possible introduction of a carbon tax in the country. However, at this stage, while Kazakhstan continues to use a quota system for assessed enterprises, it will be important to work on improving the efficiency of its internal monitoring, reporting and verification system, as accurate information on the volume and quality of company emissions serves as the basis for strategic planning and progress monitoring in reducing GHG emissions. In addition to the above, companies need to incorporate the cost of carbon quotas into their development strategies or programmes and develop an internal carbon price as a mechanism for assessing GHG emissions, contributing to positive changes in such companies’ business. Continuous efforts are also needed to increase the awareness of those company leaders making key decisions regarding climate change and transitional risks (Abdraimova & Antonov Reference Abdraimova and Antonov2023, Tulepbergenov & Kovalenko Reference Tulepbergenov and Kovalenko2023). As for the development of a unified policy regarding border tax, it is evident that countries with the largest carbon dioxide emissions need to act together rather than unilaterally to promote climate change mitigation and update the rules-based global trading system.
Conclusions
The adoption of the CBAM has posed a challenging task for importers in many countries worldwide, prompting the global business community to reconsider its approach to the concept of a carbon tax. Given the EU’s share in global trade, suppliers from various countries collaborating with it will need to adapt their trade strategies and monitor emission indicators in their supply chains to comply with EU monitoring, verification and reporting standards. However, due to various circumstances, companies may not be aware of where the actual emissions related to the development of their products occurred, reducing transparency and complicating reporting mechanisms.
Furthermore, there is concern about potential retaliatory measures from other countries due to the perception of the border tax system as protectionist. Although European rules may generally be perceived as discriminatory, there is currently no compelling evidence that the decision to introduce them was intentionally protectionist. The EU needs to allocate time to its cooperation with trading partners and, at the very least, garner support for its carbon tax initiatives. In the event of successfully persuading other countries of the necessity and importance of this proposal, the global community may set an example of a new internal climate policy complementing the carbon pricing system in the EU. Regarding Kazakhstan, it is necessary to note that despite the fact that the introduction of a carbon tax is currently considered a distant prospect, the transition to strategies taking into account the existence of a border tax seems inevitable. Kazakhstan will probably have to adapt to this trend.
At present, it is difficult to predict the specific consequences of this policy for supply chains and global trade as a whole. However, from the perspective of global environmental goals, it is important for European CBAM initiative to receive international support. The more actively the EU promotes its initiatives to developing economies, the sooner the applicability of carbon taxes as a leading practice in the context of local economies can be assessed. From the standpoint of international trade, this will help avoid potential shocks, trade disputes and consumer cost increases. From the perspective of benefits to the EU, the effective implementation of the CBAM will yield it reputational dividends, confirming its global leadership in environmental sustainability and contributing to the dissemination of carbon pricing systems in other countries. In the absence of better CBAM solutions at the present time, the European CBAM initiative may be considered an example of advanced environmental practices. However, it is currently impossible to accurately measure the degree of compatibility of the CBAM with the WTO. As a compromise, the creation of so-called ‘carbon clubs’ appears to be a promising solution. These could represent coordinated groups of countries, with membership of which requiring adherence to certain minimum carbon emissions price criteria, and joining such groups would provide access to club benefits.
Data availability
Data are available on request.
Acknowledgements
None.
Author contributions
Gulmira Issayeva: conceptualization; methodology; writing – original draft. Iulian-Romeo Ihnatov: data curation; investigation; writing – original draft. Elmira Zhussipova: project administration; resources; writing – review & editing. Galimzhan Pazilov: conceptualization; data curation; writing – review & editing.
Financial support
This research is funded by the Science Committee of the Ministry of Science and Higher Education of the Republic of Kazakhstan (Grant No. АР 19677574 ‘Development of an economic mechanism for environmental taxation as a financial instrument for environmental regulation of the Republic of Kazakhstan’).
Competing interests
The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.
Ethical standards
Not applicable.
