Carbon Border Adjustment Mechanisms (CBAMs) represent a significant development at the intersection of trade policy and climate action. These measures aim to prevent carbon leakage while maintaining the competitiveness of industries in regions with ambitious climate policies.
How CBAMs Work
A CBAM places a carbon price on imported goods based on the emissions generated during their production. This ensures that imports face the same carbon costs as domestic products, creating a level playing field and reducing the incentive to relocate production to regions with weaker climate regulations.
The EU CBAM
The European Union's CBAM, which began its transitional phase in 2023, covers cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen. Importers must purchase CBAM certificates corresponding to the carbon price that would have been paid if the goods were produced under EU carbon pricing rules.
Global Implications
The EU CBAM has prompted other jurisdictions to consider similar measures. This development is encouraging countries worldwide to strengthen their own carbon pricing frameworks, potentially creating a more level global playing field for climate action.
Impact on Developing Countries
CBAMs raise important equity concerns for developing countries that may face increased costs for their exports. Provisions for technical assistance and revenue sharing are being discussed to ensure that border carbon measures support rather than hinder global development goals.