Last week, the European Union announced the “Carbon Border Adjustment Mechanism" (CBAM), placing a carbon dioxide tariff on the imports of goods such as steel and cement. This is the world's first carbon border tariff.
According to the new tariff, companies that import into the EU will be required to purchase CBAM certificates to, “pay the difference between the carbon price paid in the country of production and the price of carbon allowances in the EU ETS.” The aim of the tariff is to prevent cheaper goods from being made in countries with weaker environmental rules and it is expected to begin as early as October 2023.
None of this comes as a complete surprise; it’s been expected for some time. Currently, cement production accounts for nearly 7 percent of global CO2 emissions, and steel production accounts for nearly 8 percent. With looming net-zero goals, regulations are needed to inspire drastic change.
The implementation of a new tariff on industrial imports in Europe has the potential to be a major boom for domestic industries. By imposing a tax on imported goods, the tariff would make it more expensive for European businesses to source materials and products from abroad, incentivizing them to instead turn to domestic suppliers. Not only will this provide a much-needed boost for the European industrial sector, but it will also support the creation of new jobs and drive economic growth.
At the same time, the tariff would also help to promote the concept of "de-coupling," or reducing our reliance on foreign sources for essential goods and materials. By supporting domestic industries and encouraging businesses to look closer to home for their supply chain needs, the tariff would help to reduce our vulnerability to disruptions in global trade and build a more resilient economy.
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