Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/272928 
Authors: 
Year of Publication: 
2023
Citation: 
[Journal:] DIW Weekly Report [ISSN:] 2568-7697 [Volume:] 13 [Issue:] 22 [Year:] 2023 [Pages:] 153-159
Publisher: 
Deutsches Institut für Wirtschaftsforschung (DIW), Berlin
Abstract: 
In October 2023, the EU Carbon Border Adjustment Mechanism (CBAM), a part of the reform of the European Emissions Trading System (EU ETS), will come into effect. Currently, energy-intensive industries do not need to purchase all of the necessary EU ETS allowances on the market to remain globally competitive, as the remaining allowances are freely allocated to them. The CBAM plans to gradually replace free allowances with a price on the carbon emissions embedded in imports. Following a transitional-primarily monitoring- phase, this price on embedded emissions will be gradually introduced from 2026 on the imports of certain products. While the CBAM can mitigate carbon leakage, production declines in greenhouse-gas intensive industries as a result of limiting free allowances, and rising carbon prices, it cannot compensate for them completely. In particular, the CBAM does not provide sufficient protection for exporters to non-EU countries. It is crucial that the CBAM does not lead to trade conflicts that would make multilateral cooperation more difficult. International cooperation is indispensable, as it is the only way to reduce global emissions.
Subjects: 
EU climate policy
CBAM
Carbon Leakage
General equilibrium trade models
JEL: 
F12
F13
F18
Q56
Persistent Identifier of the first edition: 
Document Type: 
Article

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