- Carbon border adjustment mechanisms (CBAM) are gaining global popularity as a way to cut carbon emissions and protect domestic economies.
- CBAMs aim to address competitiveness concerns and prevent carbon leakage by imposing a fee on imports based on their embedded emissions.
- The fee is equivalent to the carbon price faced by domestic producers, with an offset for carbon prices paid in the country of origin.
- Carbon pricing methods include carbon taxes and emissions trading systems (ETS).
- Carbon leakage occurs when emissions move offshore to jurisdictions with less-stringent environmental policies, making their products cheaper and more desirable.
- CBAMs help ensure that imports face the same carbon price as domestic producers, preserving environmental benefits and promoting fair competition.
Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.