Carbon Border Adjustment Mechanism (CBAM)
Carbon Border Adjustment Mechanism (CBAM) has emerged as a significant policy tool in the fight against climate change, aiming to address carbon leakage and ensure fairness in global trading. This mechanism is designed to impose a carbon tariff on imported goods based on their carbon footprint, which is calculated using the same methodology as the […]
Carbon Border Adjustment Mechanism (CBAM) has emerged as a significant policy tool in the fight against climate change, aiming to address carbon leakage and ensure fairness in global trading. This mechanism is designed to impose a carbon tariff on imported goods based on their carbon footprint, which is calculated using the same methodology as the carbon pricing system in the country of origin. By doing so, CBAM aims to reduce carbon emissions and promote a level playing field for international trade.
The potential impacts of CBAM on global trading dynamics are significant and multifaceted. Firstly, exporters from countries with lower carbon prices or less stringent environmental regulations may face challenges due to CBAM tariffs, potentially affecting their competitiveness in markets where CBAM is implemented. Conversely, industries in countries with lower carbon emissions or more efficient production processes may benefit, maintaining or gaining a competitive advantage under CBAM.
Secondly, the implementation of CBAM may lead to trade disputes between nations, particularly if exporting countries perceive it as discriminatory or protectionist. Disputes may arise over calculation methods, verification processes, or the fairness of CBAM implementation. However, CBAM might also incentivize policy harmonization, as countries seek to align their climate policies and carbon pricing mechanisms to avoid or mitigate CBAM tariffs.
Thirdly, industries affected by CBAM may reallocate resources to reduce carbon emissions and minimize tariff impacts. This could involve investments in cleaner technologies, changes in production processes, or shifts in supply chains towards regions with lower carbon footprints. Consequently, companies may reconfigure their supply chains to optimize for lower carbon emissions, potentially reshaping global trade patterns.
Lastly, developing countries may face challenges in complying with CBAM requirements due to limited resources or technology. CBAM could exacerbate existing inequalities in global trade, raising concerns about the potential negative impacts on the development prospects of these countries. International cooperation, capacity building, and support for technology transfer may be necessary to help developing countries adapt to CBAM regulations and participate effectively in global trade.
In conclusion, CBAM has the potential to significantly impact global trading dynamics, affecting exporters, competitiveness, trade disputes, resource allocation, policy harmonization, supply chains, and developing countries. While CBAM aims to address carbon leakage and promote climate action, its implementation requires careful consideration of its implications for global trade and cooperation among nations to ensure fairness, effectiveness, and inclusivity in the transition to a low-carbon economy.
References:
2. https://www.set.or.th/th/about/setsource/insights/article/55-cbam
3. https://www.set.or.th/th/about/setsource/insights/article/55-cbam
4. https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en
This article is a part of the class “751447 SEM IN CUR ECON PROB” supervised by Asst. Prof. Napon Hongsakulvasu Faculty of Economics, Chiang Mai University.
This article was written by Anna Kangwannavakul student ID 631615063
