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EU carbon tariff opens door to green GCC manufacturers

Emirates Global Aluminium engineers at the company's Al Taweelah refinery. EGA sells its green aluminium to European car makers EGA
Emirates Global Aluminium engineers at the company's Al Taweelah refinery. EGA sells its green aluminium to European car makers
  • CBAM tariff starts in 2026
  • Opportunity for Gulf companies
  • Producers must comply with EU

Europe’s decision to place a tariff on a selected group of carbon-intensive imports may offer a competitive advantage to Gulf manufacturers who are investing in carbon-reducing technologies, industry observers believe.

By decarbonising hard-to-abate sectors, GCC countries can become the European Union’s privileged trade partners, because producers with lower carbon emissions will get better access to the EU market.

Last year, the EU introduced what it called a “carbon border adjustment mechanism”, or CBAM for short, to put a supposedly fair price on carbon emissions associated with imported goods and encourage cleaner industrial production in non-EU countries.

The carbon-pricing mechanism is being introduced over three years and will be fully effective in 2026.

Sharif Salim Al Olama, undersecretary for energy and petroleum affairs in the UAE’s energy and infrastructure ministry, told a conference in Abu Dhabi earlier this month that there was strong and growing collaboration between the GCC and the EU in “two of the most important and critical issues of our time: climate change and the transition to a sustainable low-carbon economy”. 

However, GCC states need to adapt their legislation to comply with European standards.

Sharif Salim Al Olama, UAE undersecretary for energy and petroleum affairsWam
Sharif Salim Al Olama, UAE undersecretary for energy and petroleum affairs

There is a need to “better align policies, strengthen industry cooperation”, Al Olama said.

Under CBAM, European importers of carbon-intensive products with the most significant risk of carbon leakage will have to purchase certificates reflecting the carbon content of those goods. They will have to pay for the difference between the carbon price in the country of production and the EU. 

The new regulation covers cement, iron and steel, aluminum, fertilisers, electricity and hydrogen, sectors that are crucial for many GCC economies, making them particularly vulnerable to CBAM’s effects.

The consultancy company McKinsey predicts that by 2030, CBAM could increase the cost of primary aluminium by 70 percent and the cost of steel by 40 percent.

EU manufacturers are likely, therefore, to attempt to source lower-intensity commodities such as green steel, aluminium and cement.

In the UAE, Emirates Global Aluminium (EGA) sells its green aluminium to European automotive manufacturers and has already earned a competitive position in the EU market. 

Masdar has partnered with Emirates Steel Arkan to decarbonise the steel sector and produce green hydrogen.

Spyros Kouvelis, team leader of EU-GCC cooperation on the green transition project, told AGBI that CBAM was initially seen as a trade protection measure and was heavily criticised by many countries.

“We are trying to explain that by decarbonising their production, they will have a much better position than other regions in the world which also want to trade with Europe,” Kouvelis said. 

Al Olama said: “Regulatory mechanisms like CBAM and the emissions trading system have the right intentions.

“Given our significant role as exporters and sectors like the steel and aluminium industries, the carbon border adjustment mechanism is crucial.”

Collaboration was important in shaping such policies, Al Olama said, to minimise disruptions to supply chains. 

Kovelis said that to export to Europe, a country needed a monitoring, recording and verification system (MRV), which tells how much carbon is emitted during the production process.

“The problem here is that none of the countries in the GCC have an appropriately working MRV system yet,” Kovelis said.

“They have to put it in place in collaboration with the EU and with an acceptable level of standards. Then the low-carbon products that they will be producing will be able to circulate much more freely.”

The UAE was the first GCC country to take steps towards an MRV, when it introduced a new climate law that will take effect next year. Under the regulations, UAE-based organisations will have to calculate their greenhouse gas emissions.

GCC countries may also consider implementing their own carbon pricing mechanisms, allowing them to collect carbon-related revenues domestically rather than letting the EU take them.

Christof van Agt, director of energy dialogue at the International Energy Forum, said that CBAM signals that more protectionist measures are likely to come “not only from the EU but also from the US and China, which are trying to protect their clean industries”. 

“There’s a great opportunity for the Mena region to team up with the EU to balance Chinese and American market power and set up their own cohesive, clean industrial space,” van Agt said, “by having compatible standards, a cohesive approach to valuing carbon and ensuring that there is a level playing field so that they benefit from their complementarity and market strengths.”

The hydrogen rainbow

  • Green hydrogen is produced on a carbon-neutral basis through water electrolysis. 
  • Turquoise hydrogen is created when natural gas is broken down into hydrogen and solid carbon with the help of methane pyrolysis.
  • Blue hydrogen is generated from the steam reduction of natural gas. 
  • Grey hydrogen is obtained by steam reforming fossil fuels such as natural gas or coal. 
  • Sometimes other colours are ascribed to hydrogen, based on how it is produced. For red, pink and violet hydrogen, the electrolysers are driven by nuclear power. 
  • Yellow hydrogen is hydrogen produced from a mixture of renewable energies and fossil fuels. 
  • White hydrogen is a waste product of other chemical processes, while the use of coal as a fuel produces brown hydrogen.

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