🔊What is the 'CBAM'?

What is CBAM (Carbon Border Adjustment Mechanism)?

🌍 Understanding CBAM

The Carbon Border Adjustment Mechanism (CBAM) is an environmental regulation introduced by the European Union (EU) that imposes additional carbon costs on imported products with high carbon emissions. This system is designed to prevent carbon leakage and promote global carbon reduction efforts.

Carbon leakage occurs when companies relocate their production facilities to countries with weaker environmental regulations to avoid strict carbon policies, leading to increased global emissions. CBAM was introduced to address this issue.

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🔹 How CBAM Works

1. Carbon Cost on Imports – When certain products (e.g., steel, aluminum, cement, electricity, fertilizers) are exported to the EU, the carbon emissions from their production process are assessed.

2. CBAM Certificates Purchase – Importers must purchase certificates to cover emissions, aligning with the EU Emissions Trading System (EU ETS).

3. Implementation Timeline – The transition began in October 2023, with full enforcement by 2026.

🔹 Key Objectives of CBAM

1. Prevents carbon leakage by discouraging relocation to low-regulation regions.

2. Protects EU industry from unfair competition.

3. Encourages global carbon reduction and green technology adoption.

4. Aligns with climate goals like the Paris Agreement.

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🌎 Impact of CBAM on Global Trade

With CBAM’s implementation, high-emission exporters to the EU will face increased costs. This will drive industries to adopt greener technologies, push countries to strengthen carbon regulations, and require businesses to track emissions and adjust pricing strategies accordingly.

🌿CBAM is not just a trade barrier—it is a key policy driving global carbon reduction efforts. Businesses and governments must enhance their green technologies and environmental policies to adapt to this new regulatory landscape.