Brazilian assessment of trade-related environmental policies in the European Union and in the United States
Winter 2024 Sergio Goldbaum
The Undersecretary of Trade Policy at the Brazilian Ministry of Development, Industry, and Trade (MDIC), Heloisa Pereira, participated in the ABCI’s XIX Annual Symposium in October 20231. During the event, she presented Brazil's assessment of trade-related environmental policies adopted in the EU and the US, namely the Carbon Border Adjustment Mechanism (CBAM) and the Deforestation Act in the EU, as well as the Inflation Reduction Act in the US. Given the relevance of her presentation, we summarize the main points here.
Concerning the Carbon Border Adjustment Mechanism (CBAM), the first issue is the imposition of EU regulations and criteria on other countries. In this sense, it goes against the Common but Differentiated Responsibilities Principle that has been adopted since the Paris Agreement in 2015. Second, CBAM disregards differences among countries. Brazil has most of his energy mix based on renewable sources, so the EU criteria do not account for Brazil's cleaner energy production. Third, the EU CBAM stipulates significantly different phasing periods for EU domestic producers and foreign producers. Europe initiated its phasing-out system in 2003, while the transitional period established in the CBAM regulation for foreign countries is less than 2.5 years.
Regarding the Deforestation Act, a major concern is that small producers, as indirect links in the supply chain, may struggle to comply with all the requirements, even if they do not operate in areas tied to deforestation. They lack the capacity or training to trace the product back to the original plot of land or install a system for online monitoring of deforestation on their land. Second, the regulation is overly restrictive and may drive smallholders into illegality, potentially increasing illegal deforestation instead of reducing it. Third, the deforestation-free regulation focuses specifically on deforestation from agricultural production and does not address deforestation caused by activities such as mining. Fourth, the legislation does not tackle the issue of subsidies for biomass and agricultural production, which may encourage unsustainable, inefficient, and non-innovative practices. Finally, the regulation disregards best practices in sustainable systems, such as those adopted in Brazil.
Concerning the Inflation Reduction Act, while the impact on Brazilian exports may not be direct, the domestic industry is leveraging it as a bargaining chip. They are requesting equivalent or compensating measures in Brazil, threatening to relocate their manufacturing facilities to the U.S. if their demands are not met.
https://media.wcl.american.edu/Mediasite/Play/05c182888387447d8a64b5564a66642e1d