Carbon pricing, or putting a price on carbon emissions to incentivize individuals and corporations to reduce their carbon footprint, has been touted as one of the most effective ways to combat climate change. However, despite its potential, carbon pricing only covers a quarter of the carbon released in the atmosphere. In this article, we will explore the challenges and opportunities ahead for carbon pricing, specifically focusing on the EU’s Carbon Border Adjustment Mechanism (CBAM) and its proposed carbon border tax.
One of the fundamental challenges of carbon pricing is that current carbon prices are too low to effectively change people’s behavior and reduce emissions. Thus, the EU’s CBAM, which includes a carbon border tax, is seen as a positive step towards more effective carbon pricing. The proposed tax aims to reduce carbon emissions from carbon-intensive imports, with metals production being one of the industries most affected due to its high carbon contribution.
The European Commission predicts that the tax could decrease emissions in targeted sectors by 29% by 2030. Additionally, the tax could also boost the competitiveness of low-carbon European industries. However, implementing the tax will present challenges, such as trade disputes and accurately measuring the carbon footprint of imports.
Despite these challenges, the EU’s CBAM and carbon border tax have the potential to significantly reduce carbon emissions and promote more sustainable practices. However, the implementation of the new EU carbon border tax may encounter difficulties and challenges, such as accurately measuring the carbon footprint of imports and potential trade disputes.
In the US, carbon pricing is unlikely to change without significant societal and political shifts, making the EU’s carbon pricing initiatives even more critical to the global effort to combat climate change. While there is much work to be done, carbon pricing, including the EU’s CBAM and carbon border tax, provides a promising path forward in the fight against climate change.
