European Union: Carbon Border Adjustment Mechanism

A border carbon adjustment mechanism (BCA) is a policy instrument whereby a government imposes a carbon price on certain carbon-intensive goods that are imported from other jurisdictions at the border. The main objective is to adjust the carbon price levied on those imported goods with the carbon price charged on domestically produced goods, for example through a carbon tax or an ETS covering domestic industry. In this sense, a BCA is an extension of a direct carbon pricing instrument like a carbon tax or an ETS to goods imported from other jurisdictions to provide a level playing field and prevent carbon leakage. With the introduction of the European Green Deal and the adoption of a 2050 netzero target, the EU has increased its efforts to level the playing field of climate ambition around the world and minimize the risk of carbon leakage. One element of the EU strategy is the Carbon Border Adjustment Mechanism (CBAM), which was adopted in April 2023, with implementation starting in a staged approach from October 1, 2023.