To help reduce its planet-heating emissions, the European Union adopted the world’s first carbon border tax in May, which comes into effect from the start of 2026 and has raised concern among exporting nations in the developing world.
Under the Carbon Border Adjustment Mechanism (CBAM), the EU will tax imports of goods whose production emits high levels of carbon emissions, beginning with cement, iron and steel, aluminium, fertilisers and electricity.
By 2034, the tax will cover all goods exported to the EU.
But the regulatory process starts already this October, when businesses trading with the EU must share emissions data relating to their products with importers - an obligation that analysts say will place a heavy burden on smaller companies.
Several other wealthy countries including Britain, Canada, Japan and the United States are considering similar taxes.
Some poorer nations have criticised the new CBAM, calling its blanket imposition on all trading partners discriminatory.
Here we look at the CBAM’s potential to reduce emissions - and what it might mean for the EU’s trading partners.
What is the main goal of the EU carbon border tax?
The European Union has an Emissions Trading System (EU-ETS) based on a “cap-and-trade” approach, whereby it sets a cap on the emissions an industry can emit and then companies trade emissions allowance certificates to stay within those limits.
The system sets a price on carbon emissions in polluting industries, making investing in efficient production and clean power sources more attractive to them. The ETS has helped the EU cut its industrial emissions by about 35 per cent between 2005 and 2021.
The EU is now further tightening the system as part of its “Fit for 55” package, a series of laws to achieve its key climate goal of reducing emissions by at least 55 per cent from 1990 levels by 2030, including through the CBAM.
The CBAM aims to prevent emissions “leakage” from the EU-ETS, which could happen if production physically shifts to countries with a lower - or no - carbon price, or if EU importers source goods that are cheaper because they do not have to factor in the cost of their carbon emissions, experts said.
Can the EU’s CBAM achieve meaningful global emissions cuts?
Evidence to date suggests that the CBAM and similar systems planned by other countries may have only limited effect in curbing emissions at the global level.
In 2015, carbon emissions from international trade accounted for about 27 per cent of global emissions, meaning goods and services consumed in the countries where they are produced are responsible for a far higher share, according to a 2021 report by the United Nations Conference on Trade and Development (UNCTAD).
Measures to curb emissions at the national level can thus “play a much greater role than international trade policies”, it noted.
Another 2021 UNCTAD report estimated that, at a carbon price of US$44 per tonne, a CBAM tax on imports would reduce global emissions by only 0.1 per cent, while the EU’s emissions would decline by 0.9 per cent.
The EU’s own assessment projects that the CBAM would result in a 13.8 per cent reduction in the bloc’s emissions by 2030, compared with 1990 levels, and a cut of about 0.3 per cent for the rest of the world.
How would an EU carbon border tax affect other countries?
The CBAM would have a financial impact on the EU’s trading partners in the sectors covered by the tax, especially least-developed countries.
According to Aaron Cosbey of the International Institute for Sustainable Development (IISD), this is because the amount of trade affected as a percentage of gross domestic product would be bigger for a poor nation like Mozambique - at over 5 per cent - than for major trading partners such as Russia, China and Britain.
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