Carbon tariff

A carbon tariff or border carbon adjustment (BCA) is an eco-tariff on embedded carbon. The aim is generally to prevent carbon leakage from states without a carbon price. Examples of imports which are high-carbon and so may be subject to a carbon tariff are electricity generated by coal-fired power stations, iron and steel from blast furnaces, and fertilizer from the Haber process.

Currently, only California applies a BCA for electricity, while the European Union and the United Kingdom will apply BCAs from 2026 and 2027, respectively. Several other countries and territories with emissions pricing are considering them.

Existing and forthcoming

European Union

This section is an excerpt from EU Carbon Border Adjustment Mechanism.[edit]

The EU Carbon Border Adjustment Mechanism (CBAM, pronounced /ˈsiːbæm/) is a carbon tariff on carbon intensive products, such as steel, cement and some electricity, imported to the European Union. Legislated as part of the European Green Deal, it took effect in 2026, with reporting starting in 2023. CBAM was passed by the European Parliament with 450 votes for, 115 against, and 55 abstentions and the Council of the EU with 24 countries in favour. It entered into force on 17 May 2023.

United Kingdom

This section is an excerpt from UK CBAM.[edit]

The United Kingdom Carbon Border Adjustment Mechanism (UK CBAM) is a carbon tariff on imports of certain goods produced with high carbon emission into the United Kingdom, similar to the European Union's CBAM. It will cover slightly different goods, and is scheduled to launch on 1 January 2027. The sectors within scope are aluminium, cement, ceramics, fertiliser, glass, hydrogen, iron and steel. There are some differences regarding the type of emissions covered. Both EU and UK CBAM cover direct ('Scope 1') emissions. Regarding indirect ('Scope 2') emissions, the EU covers only emissions from electricity consumed during the production process. The UK CBAM proposals cover more indirect emissions, namely from heat, steam and cooling, on top of electricity.

California

The California Cap-and-Trade Program has a carbon border adjustment mechanism for imported electricity since 2011, and is required to report to the Legislature in 2025 on a potential extension of border adjustment to physical products.

WTO rule compatibility

Current WTO rules may prohibit some types of carbon border adjustment. In 2024, the United States Democrats (then in government) stated that carbon border adjustment does not amount to a carbon tax but instead to a fee that is permissible under World Trade Organization(WTO) rules,. The WTO itself has not come to a conclusion.

References

  1. 1 2 "What is a Carbon Border Adjustment Mechanism?". Brookings. Retrieved 2024-11-13.
  2. ↑ Böhringer, Christoph; Fischer, Carolyn; Rosendahl, Knut Einar; Rutherford, Thomas Fox (January 2022). "Potential impacts and challenges of border carbon adjustments". Nature Climate Change. 12 (1): 22–29. doi:10.1038/s41558-021-01250-z. hdl:1871.1/ddd1baf4-e0ed-4921-953e-ba056e84b3ca. ISSN 1758-6798.
  3. ↑ "EU's CBAM to spur other countries to introduce carbon border levies: IETA".
  4. ↑ "Why Ukraine peace talks are more about talking than peace". www.ft.com.
  5. ↑ Gore, Tim (13 September 2021). "The proposal for a Carbon Border Adjustment Mechanism fails the ambition and equity tests". Heinrich-Böll-Stiftung. Retrieved 3 October 2021.
  6. ↑ Oung, Angelica (2 October 2021). "Ministry urges firms to step up decarbonization". Taipei Times. Retrieved 3 October 2021.
  7. ↑ Smith-Meyer, Bjarke (14 September 2021). "OECD boss: Digital tax deal can inspire global deal on carbon pricing". Politico. Retrieved 3 October 2021.
  8. ↑ "EU's new 'green tariff' rules on high-carbon goods come into force". The Guardian. 2026-01-01. ISSN 0261-3077. Retrieved 2026-01-01.
  9. ↑ "Carbon Border Adjustment Mechanism". Anthesis. Retrieved 23 July 2025.
  10. ↑ Catrain, Lourdes; Seeuws, Stephanie; Schroeder, Stefan; Poll-Wolbeck, Finn; Maruyama, Warren H.; Hawkins, Gregory M. (9 September 2021). "The EU Carbon Border Adjustment Mechanism: inspiration for others or Pandora's box?". engage.hoganlovells.com. Archived from the original on 28 September 2021. Retrieved 22 November 2021.
  11. ↑ Hancock, Alice; Espinoza, Javier (18 December 2022). "Brussels agrees details of world-first carbon border tax". Financial Times. Retrieved 20 December 2022.
  12. ↑ "Carbon border adjustment mechanism as part of the European green deal". Legislative Train Schedule (European Parliament). 20 November 2022. Retrieved 20 December 2022.
  13. ↑ "Results of Votes (22 June 2022)" (PDF). European Parliament. 22 June 2022. Archived from the original (PDF) on 9 July 2022. Retrieved 20 December 2022.
  14. ↑ Council (2023). "Voting record".
  15. ↑ "Carbon Border Adjustment Mechanism". European Commission. European Union. Retrieved 21 May 2023.
  16. ↑ "Brexit: Clarity needed to prevent EU row on NI environmental taxes". www.bbc.com. 2025-01-29. Retrieved 2025-04-11.
  17. ↑ Lydgate, Emily; Winters, L. Alan (2025-03-01). "The UK's border carbon leakage trilemma". Energy Policy. 198 114393. doi:10.1016/j.enpol.2024.114393. ISSN 0301-4215.
  18. ↑ "Dr Leonelli appointed to UK Government CBAM Joint Working Group". London School of Economics and Political Science. Retrieved 2025-04-11.
  19. ↑ "UK CBAM 2027: how Britain's carbon border mechanism works". cbamguide.com. 2026-04-04. Retrieved 2026-04-06.
  20. ↑ "NFU highlights concern over introduction of CBAM". www.nfuonline.com. 2023-12-20. Retrieved 2025-04-11.
  21. ↑ "UK Government to implement CBAM by 2027". PricewaterhouseCoopers. Retrieved 2024-06-19.
  22. ↑ "Factsheet: UK Carbon Border Adjustment Mechanism". GOV.UK. Retrieved 2024-06-19.
  23. ↑ "Research Briefing. Carbon Border Adjustment Mechanism". 2024-03-05.
  24. ↑ "UK CBAM vs EU CBAM: key differences explained". cbamguide.com. 2026-04-04. Retrieved 2026-04-06.
  25. ↑ "California ETS Border Carbon Adjustment". Model Laws for Deep Decarbonization in the United States. Retrieved 21 May 2023.
  26. ↑ California Air Resources Board (CARB) (April 9, 2024). "Regulation for the California Cap on Greenhouse Gas Emissions and MarketBased Compliance Mechanisms 2024 Amendments" (PDF).
  27. ↑ "What is a carbon border adjustment mechanism (CBAM) and what are some legislative proposals to make one?". United States Congressional Joint Economic Committee. Retrieved 2024-11-13.
  28. ↑ Porterfield, Matthew C. "Carbon Import Fees and the WTO" (PDF).