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Carbon Border Adjustment Mechanism explained

As the world struggles to mitigate the effects of climate change, the European Union (EU) has introduced a Carbon Border Adjustment Mechanism (CBAM) to ensure that non-EU companies pay for their carbon emissions. This policy aims to level the playing field for European companies, which are subject to strict carbon pricing policies, by imposing carbon pricing on imports from countries that do not have comparable policies. In this blog post, we will explore the Carbon Border Adjustment Mechanism and discuss how carbon footprint measurement plays a vital role in its implementation.


What is the Carbon Border Adjustment Mechanism?

The Carbon Border Adjustment Mechanism is a policy introduced by the EU that aims to reduce the risk of carbon leakage, which is the relocation of carbon-intensive production to countries with lax environmental policies. The CBAM will require importers to pay for the carbon emissions embedded in the products they import into the EU. The policy is set to take effect from 2026 and will initially apply to selected industrial sectors that are most at risk of carbon leakage, such as steel, cement, and aluminum.


How will carbon footprint measurement be used in the CBAM?

Carbon footprint measurement plays a crucial role in the implementation of the CBAM. To calculate the carbon footprint of a product, companies need to consider the carbon emissions generated throughout the product's life cycle, including the emissions from raw material extraction, production, transportation, and disposal. The carbon footprint of a product is then used to determine the amount of carbon pricing that will be imposed on the product at the border.


The EU plans to use a carbon pricing system that is similar to its existing emissions trading system (ETS). The ETS sets a cap on the amount of carbon emissions that companies can produce, and companies are required to purchase emissions allowances to cover their emissions. The same principle will apply to the CBAM, where importers will need to purchase carbon allowances to cover the carbon emissions associated with their products.


The CBAM is seen as a necessary policy to ensure that non-EU companies pay for their carbon emissions and to reduce the risk of carbon leakage. The policy will help to level the playing field for European companies and encourage companies worldwide to reduce their carbon emissions.


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