Three Challenges for the CBAM's Transitional Phase

In 2021, as part of the European Union’s “Fit for 55” initiative to reduce European greenhouse gas emissions by 55% by 2030, the European Commission proposed a cross-border carbon pricing mechanism targeting imports of carbon-intensive products: the Carbon Border Adjustment Mechanism (CBAM). While the EU established an internal carbon pricing scheme as early as 2005 with its Emissions Trading Scheme (ETS), other countries are still in the early stages of designing or implementing similar schemes. Differences in carbon policy design and regulatory regimes across different countries have led to concerns about “carbon leakage”, whereby efforts to reduce greenhouse gas emissions in one country result in the relocation of economic activities and associated emissions to countries with less stringent policies. The CBAM aims to create a level-playing field by charging an additional fee on carbon intensive goods entering the European single market.