20 December 2022

The European Union has introduced a carbon tariff on imports to combat climate change and reduce greenhouse gas emissions

Under the new mechanism, companies will buy certificates to cover emissions from the production of goods imported into the EU based on the price of emission allowances in the EU.

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The December agreement between European governments and the European Parliament brought to an end more than a year of negotiations on the details of this new mechanism. The carbon tariff, also known as the Carbon Border Adjustment Mechanism (CBAM), is part of a wide-ranging package of legislation that is expected to strengthen the bloc's efforts to curb global warming. It will apply to products imported into the EU that are made in countries without sufficient emissions pricing or environmental regulations.

The purpose of the carbon tariff on imports is to level the playing field for European companies that are subject to carbon pricing and other environmental regulations. It should encourage the production of low-carbon goods and also encourage other countries to adopt similar policies. The carbon duty applies to a wide range of products, including industrial and consumer goods, electricity and fuels.

However, the carbon offset mechanism is controversial: Some argue that it could lead to higher prices for consumers and a potential trade war with countries that have not established similar policies. In particular, the US and South Africa have argued that the CBAM will unfairly penalise their producers, who may now face a wave of cheap imports from companies unwilling to pay the EU carbon tariff and instead export their goods elsewhere. Others argue that it is necessary to stimulate the transition to a low-carbon economy and reduce global greenhouse gas emissions.