The EU Carbon Border Adjustment: Challenges and Suggestions for Improvement

The EU has launched a Carbon Border Adjustment Mechanism (CBAM), which is set to come into effect at the beginning of next year. In certain sectors (steel, aluminium, cement, hydrogen, electricity), imports will be subject to additional charges based on the EU CO2 price. This is intended to prevent CO2-intensive domestic production from being displaced by imports ("leakage") – which would be counterproductive for global greenhouse gas emissions and detrimental to value creation in domestic industry. However, the mechanism suffers from numerous problems, most of which are caused by insufficient data availability and severely limit the functioning of the CBAM. The study analyses the difficulties and offers possible solutions.