Answer: One of the pillars of effective carbon pricing is a border carbon adjustment that equalizes carbon costs for domestic and foreign manufacturers. It’s a system of levies on imports and refunds on exports to balance carbon pricing impacts. This not only maintains a level playing field for businesses, it also discourages companies from “off-shoring” their carbon emissions by relocating to countries that do not price carbon. [1] As Europe’s carbon prices increase, the European Union (EU) plans to institute a Carbon Border Adjustment Mechanism (CBAM). [2] This policy, which will be phased in from 2023 to 2026, [3] will have an impact on American exporters. But if the U.S. were to enact a fee and dividend policy with a price that matched or exceeded Europe’s, American companies trading with the EU would almost certainly be able to avoid that border levy. In short, to maintain trading parity with Europe, the U.S. needs to price carbon. Depending on how the CBAM is structured, the relative carbon efficiency of U.S. industry may also confer an inherent trade advantage compared to most of our non-EU trading partners. [4] Because of this, the U.S. would be wise to promptly enact carbon pricing, in coordination with the EU, to preserve that potential trade advantage with non-EU economies. If the U.S. and Europe both price carbon with a border adjustment, the trading leverage of these two economic giants would pressure other nations to follow their lead. This is not just speculation; both China [5] and Russia [6] have made it clear that a one-way CBAM from the EU will be costly to them, and are adjusting their own carbon pricing ambitions accordingly. [7,8] This should be helpful in the fight to reduce global emissions. This page was updated on 10/17/21 at 23:24 CDT.European Union Border Adjustment
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Question: How will the upcoming EU border adjustment affect U.S. climate policy?
European Union Border Adjustment
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