未来能源研究所-碳边界调整如何推动全球气候政策势头How Carbon Border Adjustments Might Drive Global Climate Policy Momentum

HowCarbonBorder

AdjustmentsMightDriveGlobalClimatePolicy

Momentum

KimberlyClausing,MilanElkerbout,KatarinaNehrkorn,andCatherineWolfram

Report24-20October2024

AbouttheAuthors

KimberlyClausingistheEricM.ZoltChairinTaxLawandPolicyattheUCLA

SchoolofLaw,anonresidentseniorfellowatthePetersonInstituteforInternational

Economics,amemberoftheCouncilonForeignRelations,andaresearchassociateattheNationalBureauofEconomicResearch.In2021and2022,sheservedastheDeputyAssistantSecretaryforTaxAnalysisattheUSTreasury.

MilanElkerboutisafellowatResourcesfortheFuture(RFF)andthedirectorofRFF’sInternationalClimatePolicyInitiative.Heisparticularlyinterestedintheintersectionofclimateandtradepolicy,greenindustrialpolicy,andcarbonpricingandmarkets

aroundtheworld.PriortojoiningRFFin2023,hewasaresearchfellowandheadof

climatepolicyattheCentreforEuropeanPolicyStudies(CEPS),aBrusselsthinktank,workingonEUclimatepolicy,emissionstrading,andindustrialdecarbonization.In

2019–2020,hespentayearasaMistraFellowatIVLSwedishEnvironmentalResearchInstituteinStockholm.HisacademicbackgroundisinEuropeanpoliticaleconomy.

KatarinaNehrkornisaseniorresearchanalystatRFF.Shegraduatedfromthe

UniversityofMichiganin2020withaBAinEconomics.Aftergraduating,sheworkedatDeloittefortwoyearsinitsRiskandFinancialAdvisorysector.In2023,Nehrkorncompletedhermaster’sinEnvironmentalEconomicsandClimateChangefrom

theLondonSchoolofEconomicswhereherdissertationwasfocusedonenergycommunitieswithintheInflationReductionAct.

CatherineWolframistheWilliamBartonRogersProfessorofEnergyEconomicsat

theMITSloanSchoolofManagementandamemberofRFF’sBoardofDirectors.ShepreviouslyservedastheCoraJaneFloodProfessorofBusinessAdministrationat

theHaasSchoolofBusinessatUCBerkeley.FromMarch2021toOctober2022,she

servedastheDeputyAssistantSecretaryforClimateandEnergyEconomicsattheUSTreasury.

Acknowledgments

TheauthorswouldliketothankBillyPizerandKevinRennertforusefulcommentsanddiscussionsandAnnieMcDarrisfordataassistance.

ResourcesfortheFuturei

AboutRFF

ResourcesfortheFuture(RFF)isanindependent,nonprofitresearchinstitutionin

Washington,DC.Itsmissionistoimproveenvironmental,energy,andnaturalresourcedecisionsthroughimpartialeconomicresearchandpolicyengagement.RFFis

committedtobeingthemostwidelytrustedsourceofresearchinsightsandpolicysolutionsleadingtoahealthyenvironmentandathrivingeconomy.

TheviewsexpressedherearethoseoftheindividualauthorsandmaydifferfromthoseofotherRFFexperts,itsofficers,oritsdirectors.

SharingOurWork

OurworkisavailableforsharingandadaptationunderanAttribution-

NonCommercial-NoDerivatives4.0International(CCBY-NC-ND4.0)license.Youcancopyandredistributeourmaterialinanymediumorformat;youmustgive

appropriatecredit,providealinktothelicense,andindicateifchangesweremade,andyoumaynotapplyadditionalrestrictions.Youmaydosoinanyreasonable

manner,butnotinanywaythatsuggeststhelicensorendorsesyouoryouruse.Youmaynotusethematerialforcommercialpurposes.Ifyouremix,transform,orbuilduponthematerial,youmaynotdistributethemodifiedmaterial.Formoreinformation,visit

/licenses/by-nc-nd/4.0/

.

HowCarbonBorderAdjustmentsMightDriveGlobalClimatePolicyMomentumii

Abstract

TheintroductionoftheEuropeanUnioncarbonborderadjustmentmechanism(CBAM)createsanimportantincentiveforothercountriestoadoptcarbonpricing.Theauthorsexaminethispolicyspillovereffect,findingthatcountriesthroughouttheworldhave

increasedtheiruseofcarbonpricingregimesaswellastheirinterestinbothcarbonpricinganddecarbonization,especiallyintheperiodsincetheEUfocusedonthis

policytool.Ifmorecountries,includingtheUnitedStates,considerborderadjustmentregimes,thiscanstrengthensuchpolicyspillovereffects.However,careshould

betakentoaddresstheneedsoflower-incomeeconomiesandtoavoiddisguisedprotectionism.

ResourcesfortheFutureiii

Contents

1.Introduction1

2.HowtheEUandUKCBAMswillworkinpractice2

3.HowCBAMsCreatePolicySpillovers4

4.CBAMSpilloversinPractice8

5.PolicyRecommendations13

5.1.ImplementingCountries13

5.2.ReceivingCountries13

5.3.Multilateralism14

5.4.UnitedStatesClimatePolicy14

6.References15

7.Appendix17

7.1.CarbonPricingDevelopments17

7.2.MediaSearchTermsandMethodology19

HowCarbonBorderAdjustmentsMightDriveGlobalClimatePolicyMomentumiv

1.Introduction

Theworldhasapowerfulnewclimatepolicytool–thecarbonborderadjustment

mechanism(CBAM)—butitsmostimpactfulaspectisalsoitsmostoverlooked.Climatechangeistheworld’slargestglobalcollectiveactionproblem.Butwithoutcoordination,countriesmayfreerideoneachother’seffortssincethecostsofpolicyactionare

borneathome,whilethebenefitsaresharedworldwide.BeforeCBAM,globalclimate

effortsfocusedonvoluntarycommitments,whichinvitefreeriding.TheCBAM

encouragescoordination,inpartbyofferinganimportantmechanismforovercomingthefree-riderproblem.

TheCBAMisanewpolicydevice,firstintroducedintolawintheEuropeanUnioninOctober2023.Beginningin2026,theCBAMwillimposealevyonselectimported

non-EUindustrialgoodsthatadjustsforthedifferencesbetweentheEUEmission

TradingSystem(EUETS)carbonpriceandthecarbonpricepaidintheproducing

countries.TheUnitedKingdomhasfollowedsuitwithaCBAMthatisscheduledtobeimplementedin2027.Governmentsaroundtheworldaretryingtounderstandhow

aCBAMwillimpacttheirexportsandwhatpolicyresponsestheyshouldtakebefore2026tomitigatepotentialnegativeeffects.

WhilemuchofthediscussionofCBAMfocusesonitsabilitytopreventproduction

andtheassociatedemissionsfrommigratingtocountriesthatdonotpricecarbon(aphenomenoncalled“leakage”)1,thepotentialpolicyspilloversareanunderappreciatedcomponentofthediscussion.2Mostdirectly,becausetheEUandUKCBAMscredit

importsforcarbonpricesalreadypaid,theyprovideincentivesforothergovernmentstoimposecarbonprices.Theycanalsoencouragegovernmentstotakeotherstepstohelptheirindustryreduceemissions,includingsubsidiesordirectinvestment

indecarbonization.Theseconsiderationsarespurringdiscussionsaboutlinkages

acrossthemultiplecomponentsofcountries’climatepolicies,includingmeasurement,innovation,andindustrialpolicies.

ThispolicybriefoutlinesthepossiblepolicyspilloversfromCBAMsandoffers

evidenceoftheirimpactstodate.OurfindingssuggestthattheEUCBAMhashad

importantspilloverimpacts,encouraginggovernmentsaroundtheworldtoconsider

carbonpricingandinstigatingconversationsaboutbroadercoordinatedclimatepolicyaction.Wewilldiscussexamplesofpolicyspillovers,includingcountriesthathave

expandedexistingemissionstradingschemes(ETSs),othersthathaveintroducednewcarbontaxesorETSs,andseveralthathaveconsideredtheirownCBAM-likepolicies.

1SeeElkerbout(2024).

2SeeClausingandWolfram(2023).

HowCarbonBorderAdjustmentsMightDriveGlobalClimatePolicyMomentum1

2.HowtheEUandUKCBAMswillworkinpractice

TheEU’sCBAMisinitsimplementationphase,followingthelaw’sadoptionin2023.

ThedesignoftheEUCBAMcanbebestunderstoodwithreferencetothedomestic

climatepolicythatitcomplements—theEUemissionstradingsystem(ETS).The

EUETSisacap-and-tradesysteminplacesince2005,whichcoverstheelectric

powerandindustrial–sectorgreenhousegas(GHG)emissionsintheEuropeanUnion.Manyenergy-intensiveindustriesproduceinternationallytradedcommodities.The

combinationofenergy(andfornow,GHGintensity)withtradeintensitycreatesariskofcarbonleakage:ifforeigncompetitorsdonotfacesimilarcarboncoststoproducersinEurope,importsmaydisplacedomesticproductionand/orproductionmaymove

offshore.ConcernsaboutindustrialcompetitivenesshavehistoricallybeenaddressedbygivingproducersfreeETSallowances,butthisapproachhaslimitations.Witha

rapidlydecliningcap,onlyalimitednumberofallowancesareavailable.Further,freeallocationdampensthecarbonpricesignalandreducesauctionrevenues.Such

considerationspromptedEUlegislatorstomovetotheCBAMasanalternative.TheCBAMdesigncanthusbeseenasanextensionoftheEUETStoimportedindustrialgoodsinETSsectors.

Atitsinception,theCBAMwillapplyonlytosomeofthelargestindustrialEUETS

emitters,suchassteelandcementproduction.Duetothecomplexitiesof,andlackofexperiencewith,implementingaCBAM,manyindustrialsectorsarenotyetincludedintheCBAMscope.However,theincludedsectorsaccountforamajorityofEUindustrialemissions.3

Practically,importersofCBAM-coveredgoodsareaskedtosubmitdataonthecarbonembeddedinthegoods(basedonactualdata,althoughdefaultvaluescanbeused

asafallback).Foreverytonofembeddedemissions,aCBAMcertificateneedstobepurchasedandsurrendered(onceayear).TheCBAMcertificatesactastheequivalenttoanEUETSallowance.Theyaresoldonacontinuousbasis,trackingtherecentEUETSprice.AswithETSallowances,importerscanstrategicallybuycertificatesbasedonmarketcircumstances.

ThechargesundertheCBAMcanbeadjustedfortworeasons(EuropeanCommission2023).First,freeallowancesarephasedoutonlygradually,between2026(whentheimplementationphaseendsandchargesbegin)and2033.Totheextentthatfree

allocationcontinues,theCBAMchargeswillbereducedcommensuratelysothatEUproducersdonotreceiveapreferencerelativetoimports.CBAMchargeswillalsobereducedwhen“acarbonpricehasalreadybeenpaidinthecountryoforigin.”

3AnanalysisoftheproposedCBAMin2021showedthatfourindustriesaccountforabout55percentofEUindustrialcarbonequivalentemissions,whichthemselvesareabout25percentofEUcarbonequivalentemissions.SeeFigure7ofEuropeanCommission2021.

ResourcesfortheFuture2

Thecreditingprovisionhasthepotentialtocreatepowerfulpolicyspillovereffects,

asjurisdictionshaveanincentivetoapplycarbonpricingtomitigateCBAMcharges.Questionsremainabouthowthisprovisionwillbeappliedinpracticesincethe

EuropeanCommissionstillneedstodevelopguidance.Whiletheprincipleofthis

so-calledArticle9provisionisstraightforward—toavoidchargingthesameGHG

emissionstwice—severalimportantimplementationdetailsarenotyetfinalized.Therearemanywaystodesigncarbonpricingpolicies.Forexample,theEuropeanUnionwillnotcreditfreeallocationmethods,suchasfulloutput-basedallocation.Butwhatifthecarbonpriceonlyappliestoexports—orevenonlytoEU-boundexports?Also,shouldenergytaxesbecreditedbasedonthecarboncontentoftaxedfuels?

BythetimetheCBAMchargesstartbindingin2026,theanswerstothesequestionsshouldbeclear.However,incraftingananswer,theEuropeanCommissionwillhave

tobalancestrictinterpretationsthatmightprotectitsownproducersmore(bynot

crediting)versusbeingperceivedasforcingitsownpolicydesignontoothercountries.

TheUnitedKingdomisontracktobethesecondcountryimplementingaCBAM,for

reasonssimilartotheEuropeanUnion.TheUnitedKingdomhasanETSthat,despitesomepost-Brexitdivergence,stillverymuchresemblestheEUETS.However,insomecases,theUnitedKingdommightchooseslightlydifferentpolicydesignoptions.TheUKCBAMintendstocoverthealuminum,cement,ceramics,fertilizer,glass,hydrogen,iron,andsteelsectors.ThisdiffersslightlyfromtheEUCBAM,asitaddsglassand

ceramicsandexcludeselectricity.TheUnitedKingdomsimilarlyintendstolimitthe

introductionofCBAMchargestosectorsmostatriskofleakagebutacknowledges

sectoralcoveragewillcontinuetobereviewedasnewinformationcomestolight.

Chargeswillincludedirect,indirect,andcertainprecursoremissionsandwillbebasedontheeffectivecarbonprice,whichisdefinedas“thepricepaidbyproducersafter

accountingfortheimpactoffreeallowancesandothersupportmechanisms”(UK

Government2024).Inkeepingwithanondiscriminatoryapproach,chargeswillbe

significantlylowerthantheUKETSprice,toreflectfreeallowancesprovidedwithintheUnitedKingdom.

HowCarbonBorderAdjustmentsMightDriveGlobalClimatePolicyMomentum3

3.HowCBAMsCreatePolicySpillovers

TheEUCBAMwillstartwithsmallfeesin2026,increasingmoresteeplystartingin

2030asfreeallowancesarephasedout.AsCBAMleviesincrease,CBAMswillcreateincentivesforgovernmentstoconsideradoptingcarbonpricing,andthoseincentivesareparticularlystrongforsomecountries.Forinstance,whencountriesexport

substantialenergy-intensiveproductstoEurope,carbonpricingcanconvertEuropeantariffrevenueintodomesticrevenue.SincetheEuropeanUnionandtheUnited

Kingdomboth“credit”existingcarbonpricingregimes,countriesthatlevyequivalentcarbonpricescan“turnoff”theborderadjustment.IfcarbonpricingregimesabroadhavelowerpricesthanthoseinEurope,thentheCBAMlevywillstillbereducedbytheamountofthecarbonprice.Likewise,exportsfromcountrieswithemissionstrading

systemscanreceivecreditforthecarbonpriceassociatedwithpurchasingemissionsallowances,ifsuchallowancesarenotgivenaway.

Importantquestionsremainabouthowcreditingwillwork,butatpresent,onlytrue

carbonpricingregimeswillbecredited.Oneproposedalternativewouldallowcreditsforpurchasesofcarbonoffsets,asawaytoencourageflowsofclimatefinance

(

SandlerandSchrag2022

).Othershavesuggestedallowingcreditsforcost-imposing

regulationsorforsubnationalefforts.Manyofthesesuggestionsraisevexingimplementationissues,evenbeyondthoseraisedbytheEUCBAM.

Inmostcases,theincidenceofatarifffallsonconsumersinthemarketthatleviesthetariff,andthesamewouldbeexpectedinmarketsthatimplementCBAMs,suchthatEuropeanconsumers(directlyorindirectly)payhighercostsforsteel,iron,aluminum,fertilizers,cement,andelectricity.Sincethesegoodswouldbemoreexpensivein

Europe,thatwouldgeneratehighercostsforgoodsproducedinEuropethatusethesegoodsasinputs.4,5

Althoughconsumersbeartheultimateburdenofmosttariffs,thesetariffstypicallyentaillargetransfersfromconsumerstobothdomesticproducersandthestate(intheformoftariffrevenue).InthecaseofEuropeanproducers,thehigherdomestic

4Theconsumerburdenfromtariffsarisesbecauseworldsupplytoanyparticularcountryisclosetoperfectlyelastic,sotheconsumersideofthemarketbearstheentiretax

burden.Intheory,largecountriescandrivedowntheworldpriceofgoodswhenthey

levytariffs,byloweringworldwidedemandforsuchgoodsandraisingworldwidesupplyofsuchgoods.Inpractice,these“termsoftradeeffects”havenotbeenobservedinthemultiplestudiesthathaveconsideredthecaseofrecentUStariffsonChinesegoods;

see

ClausingandLovely(2024)

.

5Basedontheearlyimplementationexperience,theEuropeanUnionwillconsiderexpand-ingthescopeofCBAM.ThisincludesexpansiontootherEUETSsectorscurrentlyleftout,butalsotheinclusionofdownstreamgoods.Thelatterwouldalterthecharacterofthepolicy,asthepolicydesignwouldshiftawayfromcloselymirroringEUETSpolicy

elements.Inconsideringexpansion,theEuropeanUnionwillwanttobalanceimpactonemissionsandcarbonleakagewiththeadministrativecostsnecessarytoextendthe

scopeofthemechanism.

ResourcesfortheFuture4

pricethatconsumerspaymerelycompensatesthemfor(somepartof)thecostofpurchasingemissionsallowances.

AnexportingcountryfacingaCBAMcanconvertthetransferfromEuropean

consumerstothestate(intheformoftariffrevenue)intolocalrevenueinsteadof

Europeanrevenuebyadoptingcarbonpricing.Forexample,considerthecasewhereMozambique—whichexportedover95percentofitsaluminumtotheEUin2019—

leviesanaluminum-sectorcarbonpriceequivalenttotheEUCBAMcharge(World

Bank2023).BecauseMozambiquefirmswilllikelyfacethecarbonpriceineithercase,theywillbeindifferentaboutthecollectionofthecarbonprice,butwheretherevenueendsup(inthehandsoftheEuropeanorMozambicantaxauthorities)willdepend

onwhetherMozambiquehasacarbonpriceinplace.ThisgivestheMozambique

governmentapowerfulincentivetolevyacarbonpriceonthealuminumsector.If

MozambicanfirmsarecleanerthanthemarginalEuropeansupplier,theymaybenefitfromtheCBAM;iftheyaredirtier,theymaybeharmedbyit.Ingeneral,thecleanestsupplierswillseepriceincreasesthatexceedtheircarbonfees,whilethedirtiest

supplierswillpaymoreinfeesthanthepricepremium,ordiverttheirproducttoothermarkets,facinghighertransportationandlogisticscosts.

CountriesmayhaveotherreasonstoadoptcarbonpricinginresponsetoCBAMs,

especiallyifCBAMsproliferate.Forinstance,forgovernmentsthatfindcarbonpricingdifficulttoimplementduetodomesticpoliticalconstraints,theexternalpressureofaCBAMcanprovidebothimpetusandascapegoat,akintopushinganopendoor,aspolicymakerscanpointoutthatexportingfirmswouldhavetopaythesefeeswhentheyexportregardlessofdomesticpolicyaction.

However,thestrengthofalltheseincentivesmaybemodestformanycountries.

Countriesthatexportlargequantitiesofenergy-intensiveproductstotheEuropeanUnion,suchasTürkiyeandUkraine,havefarstrongerincentivesthancountriesthatexportfarfewerquantitiestoCBAMjurisdictions.Atpresent,thesmallscopeof

CBAMsandnumberofjurisdictionsthatimposethemlimitssuchincentives,butifCBAMsdeepenandwiden,suchincentiveswouldincrease.

Evencountriesthatalreadyhavecarbonpricingpoliciesinplacemightconsider

changingtheparametersoftheirprogramsinresponsetotheCBAM.AnexampleisChina,whichisconsideringaddingthesteel,cement,andaluminumsectorstoitsETSaheadofthe2026startforCBAMcharges(

Reuters2024

).

CBAMsalsomayinduceresponsesonothermargins,evenwithoutacountryadoptingcarbonpricing.Forinstance,CBAMsmayprovideincentivestolocateenergy-intensiveproductionnearcleanenergysourcesorinnovatecleanerproductionmethods.Suchresponsesalsomaybeimportantindrivingemissionsreductions.However,countriesmayreshuffleenergyuseorunderlyingtrade.Forexample,ifacountryusesmore

hydropowerforfertilizerproductionwhileusingdirtierenergysourcesforotherneeds,itsresponsetotheCBAMwillmerelyrelabelexistingenergyuse.Likewise,ifcleanersourcesofproductiongotoCBAMmarkets,whereasdirtiersourcesarediverted

elsewhere,theextentofindustrialcarbonizationwillbemorelimitedthanifCBAMmarketsbecamemorewidespread.

HowCarbonBorderAdjustmentsMightDriveGlobalClimatePolicyMomentum5

Evenwhengovernmentsadoptcarbonpricing,theiradoptionmaybefarfroman

economy-widecarbonprice.Instead,theymayfocusonCBAMsectors,orevensolelyonexportsfromCBAMsectors.WhileexporttaxesarenotpermissibleundertheUSConstitution,noWorldTradeOrganization(WTO)rulesprohibitthem.Levyingan

exporttaxsolelyonexportsdestinedforCBAMmarkets,however,maybeimpractical.Exporterswouldsimplydiverttradetonon-CBAMmarketswhenfeasible,andtradewouldreshuffleasaresult.WhethertheEuropeanUnionwouldcreditsucharegimealsoremainsunclear.

Further,bothbroaderexporttaxesandcarbonpricingwouldcontinuetoraise

competitivenessconcernsinmarketswithoutcarbonpricing,absentasystemof

exportrebates.Thus,industrialoppositiontosuchpolicieswouldbeexpected,

althoughpolicymakersmightconsiderotherwaystoreducenegativeeffectson

industry,includingloweringothertaxes,moreinfrastructuresupport,orotherpolicytools.

Oneimplementationquestioniswhethertocreditforcarbonpricesenactedbysub-nationalgovernments,suchasUSstates,Canadianprovinces,orChinesecities.Thisapproachcouldincentivizeclimatepoliciesatasub-nationallevel,whichmaybemorepoliticallyviableandwhichmaybeaprecursortonationalactioninthelongrun.Still,theapproachcouldinvitegaming.Similartothereshufflingissuesidentifiedabove,

highlylocalizedjurisdictionsthatincludefactoriesthatexporttotheEuropeanUnionmayenactcarbonpricing.Also,creditingsub-nationalcarbonpricesincreasesthe

administrativeburdensbyaddingmorepoliciestoreviewandevaluate.TheconditionsarestilluncertainunderwhichtheEuropeanUnionwillcreditforcarbonpricesalreadypaid.Itwillpresumablywanttostrikeabalancebetweenofferingsufficientprotectionagainstloopholesandavoidingoverlyburdensomerestrictionsthatothercountries

mayperceiveasinfringingontheirownpolicyspace.

Carbonpricingsystemsbasedoncarbonintensitytargetsposeanotherchallenge.

Notably,theChineseETSisbasedonreducingthecarbonintensityofcoveredsectorsovertime,withoutnecessarilycappingtheabsolutequantityofemissions.Thepricediscoverythattakesplaceundersuchapolicydesignisdifferentfromwhatcouldbeexpectedunderanormalcap.Thismightaffectjudgmentsonequivalency.

Atahighlevel,thehopeisthattheEUandUKCBAMsleadtoavirtuouscycle,wheremoreandmorecountriesadoptcarbonpricingaspartoftheirfightagainstclimate

change.If,forexample,Thailand,Brazil,India,andothercountriesnowdiscussing

domesticcarbonpricingalsoimplementborderadjustments,additionalcountrieswillseethedirectadvantageofcarbonpricingtoavoidtariffsonexportsandthepoliticalbenefitofjoiningthemomentum.Asthecarbonpricingwavegathersmorecountries,itbecomesstronger,andultimatelycandrawineventhemostreluctantgovernments.

CoordinatedactiononcarbonpricingandCBAMswillinturnmakethepoliciesmorestreamlined,loweringcomplianceandadministrationcosts.Forexample,countriescanworktogethertodevelopsimilarapproachestomeasuringcarbonemissionsaswell

asprotocolsformonitoringandverifyingreportedemissions.Coordinationwillhelpindividualcountriesbuildcapacitydomesticallybyleveraginglessonsfromelsewhere

ResourcesfortheFuture6

andbuildconfidenceintheglobalsystem.Forexample,morethanadozencountrieshavealreadybegunaprocesstocoordinateonmeasuring,monitoring,andverifyingmethaneemissionsfromtheoilandgassector.

Importantly,globalcoordinationtoovercomepolicyreluctancehasworkedinother

domains.The2021internationaltaxagreementshowsarecentprecedentforglobal

coordinationonthelong-vexingglobalcollectiveactionproblemoftaxcompetition

(

Clausing2023

).TheincentivesbehindtheinternationaltaxagreementaresimilartoCBAM:ifcountriesdonotadopttheagreedcorporateminimumtax,theirmultinationalcompaniesoperatinginadoptingjurisdictionsarestillonthehooktopaythetax.Thiscreatesincentivesforcountriestojointheagreementtoavoidlosingfiscalrevenuestoothercountries.

HowCarbonBorderAdjustmentsMightDriveGlobalClimatePolicyMomentum7

4.CBAMSpilloversinPractice

EvidenceisgrowingthattheEUCBAMisalreadyleadingtoglobalspillovers.When

theEUCBAMwasfirstdiscussedinJuly2019,57carbon-pricinginitiativeswereeitherimplementedorscheduledforimplementationglobally(

WorldBank2019

).As