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EU Carbon Tariff Likely to Have Limited Impact on Emissions Without Global Measures

European Union (EU) import charges on carbon-intensive products are expected to have a limited impact on climate change and only a modest negative effect on economies in Asia and the Pacific, according to research by ADB.

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The European Union's (EU) Carbon Border Adjustment Mechanism (CBAM), set to go into force in 2026, will impose import charges on products such as steel, cement, and electricity, based on the carbon dioxide emissions embedded in their production. The charges are aimed at curbing “carbon leakage,” the result of polluters moving production from countries with stringent regulations or high carbon prices to those with less stringent regulations or lower prices.

However, CBAM is likely to reduce global carbon emissions by less than 0.2% relative to an emissions trading scheme with a carbon price of 100 euros ($108) per metric ton and no carbon tariff, statistical modeling shows. At the same time, the charges may reduce global exports to the EU by around 0.4% and Asia’s exports to the EU by around 1.1%, while negatively affecting the output of some manufacturers within the EU.

a ETS only means that European economies impose tighter ETS carbon allocations, with a resulting €100/MT price. There is no CBAM applied at the border.
b ETS and CBAM means European economies impose tighter ETS carbon allocations, with a resulting €100/MT price. CBAM taxes are imposed for ETS sectors.
c Developed Asia includes Australia, Japan, and New Zealand.
d ETS sectors include chemicals, rubber, and plastics; electricity; ferrous metals; gas manufacture and distribution; metal products; metal products, not classified elsewhere; nonferrous metals; petrochemicals and coal products; transport, not elsewhere classified; and wood.
e Labor represents shifts of employment across sectors and thus captures the extent of structural change in response to the EU’s CBAM.

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