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Carbon border taxes raise international dispute risks

Tuesday, May 18, 2021

Significance

Increasingly demanding climate mitigation targets in some economies have raised concerns over industry competitiveness and possible relocations of carbon-intensive industries. The EU plans a ‘carbon border adjustment mechanism’ (CBAM), effectively a tax, by 2023, to penalise imports from economies without comparable climate policies. These types of measures strengthen industry support for such policies, but risk triggering trade disputes.

Impacts

  • Efforts to link different emission trading schemes will grow.
  • Decarbonisation policies will change demand patterns for manufacturing inputs.
  • Developing countries’ climate diplomacy will need to be coordinated with their trade ministries.

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