Climate change is a global challenge that requires coordinated international efforts. The European Union (EU) has been at the forefront of climate policy, setting ambitious goals to reduce greenhouse gas emissions. One of the key components of the EU’s strategy is the Carbon Border Adjustment Mechanism (CBAM), a policy instrument designed to address carbon leakage and maintain a level playing field for European industries. In this blog post, we’ll explore what the CBAM is, how it works, and why it’s so important for the fight against climate change.
What is Carbon Leakage? Carbon leakage occurs when companies relocate their production to countries with less stringent climate policies, causing an increase in global greenhouse gas emissions. This not only undermines the EU’s efforts to combat climate change but also puts European industries at a competitive disadvantage, as they face higher costs due to their compliance with stricter environmental regulations.
The Carbon Border Adjustment Mechanism: To tackle carbon leakage and ensure fair competition, the EU has introduced the Carbon Border Adjustment Mechanism. Under the CBAM, importers of certain goods into the EU are required to purchase certificates representing the carbon emissions associated with the production and transportation of those goods. The price of these certificates is based on the EU’s Emissions Trading System (ETS) carbon price.
This innovative mechanism incentivizes producers in other countries to adopt cleaner production methods and reduce their carbon footprint