Transforming Europe’s Carbon Border Adjustment Mechanism: Key Insights on Climate Action and Renewable Energy

As the climate crisis intensifies, the European Union (EU) and the UK are implementing the Carbon Border Adjustment Mechanism (CBAM). This policy aims to connect trade with climate action, but it’s hitting some bumps along the way.

CBAM imposes a price on carbon emissions linked to imported goods like steel, aluminum, and cement. The idea is to support the EU’s Emissions Trading System (ETS) and encourage cleaner production globally. However, the portrayal of CBAM as a simple solution isn’t holding up.

Though the European Parliament recently endorsed a simplified version of the CBAM, many experts warn it could backfire. Instead of fostering a fair energy transition, it could increase trade tensions and deepen inequality, delivering only small climate benefits.

As of October 2023, a reporting phase has begun. Importers must report their carbon emissions but won’t pay until January 2027 when the charges will kick in. Unfortunately, many countries in the Global South, especially major EU exporters, are not ready for these changes. They often lack the resources and systems to accurately track emissions, putting them at a disadvantage right from the start.

Recent research from the UN highlights that many developing nations are still reeling from the impact of COVID-19 and are struggling to comply with new EU standards due to insufficient infrastructure and funding. A report by Oxfam indicates that 70% of these countries are facing crippling public debt while trying to meet international climate goals.

Beyond this, the revenues raised by CBAM will primarily benefit EU and UK budgets rather than contribute to global climate initiatives. This has led to claims that the mechanism is more about trade protection than genuine climate action. Developing countries view it as a unilateral measure that could restrict their growth prospects under the guise of environmental responsibility.

The stakes are high, especially as global collaboration falters and trade tensions heighten. Without support for affected exporters, the CBAM might lead to economic fragmentation, making it harder to achieve global climate goals.

However, there’s room for improvement. Experts suggest delaying the financial penalties under CBAM until at least 2028. This would allow developing countries to build the necessary systems for compliance. For effective change, funds generated by CBAM could be directed toward building capacity in these nations, such as developing emission-tracking systems and boosting green investments.

Moreover, a portion of the revenues should support international climate collaborations. This can make CBAM fairer and earn the trust of developing nations, turning a potential burden into an incentive for progress. Policymakers should not see CBAM as an endpoint but as a stepping stone toward establishing a more inclusive carbon-pricing model.

It’s important to recognize that combating climate change isn’t just about regulating imports. A successful strategy needs to focus on empowering nations to develop sustainably. A recalibrated CBAM can offer a framework for international cooperation rather than division.

To win the battle against climate change, inclusion is pivotal. A well-crafted CBAM could serve as a crucial tool in forging a path toward a collaborative and sustainable future.

By Rola Dashti, Claver Gatete, and Mahmoud Mohieldin

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Carbon Border Adjustment Mechanism (CBAM),Europe,European Union (EU),UN Economic Commission for Africa (ECA)