Europe’s carbon border tax advances the fight against climate change

CAMBRIDGE – The European Union’s Carbon Border Adjustment Mechanism (CBAM), officially launched in October 2023, now requires importers to report on the direct and indirect greenhouse-gas (GHG) emissions embedded in the goods they import. Beginning in January 2026, the EU will start imposing tariffs on imports from countries that do not price carbon at the bloc’s market rate, which could significantly affect carbon-intensive producers among its trading partners.

The EU’s new carbon-pricing regime may seem like a potential source of international discord, adding to the already overcrowded agenda of daunting global challenges. But a closer look suggests that the CBAM could represent the most effective global path towards achieving the Paris climate agreement’s ambitious emissions-reduction goals.

In 1994, when the United Nations Framework Convention on Climate Change entered into effect, it was clear that getting countries to agree to and comply with limits on GHG emissions would be extremely difficult, owing to the substantial economic costs. While market mechanisms like carbon pricing or tradable emission permits were viewed as a promising way to minimise these costs, many believed they could never work, because public opinion in most countries was far less supportive of market-based approaches than it was in the United States.