Definition
A carbon pricing policy adopted by the European Union that imposes a fee on imported goods based on their carbon footprint, ensuring that products entering a country meet the same emissions reduction standards as domestic industries. CBAM is designed to prevent carbon leakage, where companies relocate production to countries with weaker climate regulations.
Why It Matters
- Encourages Global Decarbonization: CBAM creates a level playing field, incentivizing exporters to adopt lower-carbon processes.
- Reduces Carbon Leakage: By applying carbon costs to imports, CBAM ensures industries cannot bypass emissions regulations by shifting production to countries with lax climate policies.
- Boosts Low-Carbon Innovation: Companies are incentivized to invest in cleaner technologies to remain competitive in global markets.
How CBAM Works
- Carbon Price Matching: Importers must pay a fee equivalent to domestic carbon pricing (such as the EU Emissions Trading System).
- Sector-Specific Regulations: Applies to carbon-intensive industries like steel, cement, aluminum, fertilizers, and electricity.
- Border Tax Adjustments: Ensures that imported goods face the same carbon costs as domestic production.
Example: European Union CBAM
The EU CBAM, implemented in 2023, initially covers steel, cement, fertilizers, aluminum, and electricity imports. By 2026, it will be fully operational, requiring importers to purchase CBAM certificates corresponding to their product’s carbon content.
Read More: European Commission – CBAM Overview
Further Reading
