The EU’s Carbon Border Adjustment Mechanism (CBAM) was published in the Official Journal of the EU on May 16, 2023. The law aims to apply a carbon price to goods imported into the EU. The hope is that the increased cost of importing carbon-heavy products will incentivize businesses to move to less carbon-intensive vendors, thereby pressuring exporting countries to adopt their own carbon management and reduction laws. Additionally, it aims to level the playing field by subjecting foreign goods to similar carbon taxes as domestic goods under the EU ETS.
While other exporting countries may feel substantial financial repercussions from CBAM, a Greenbiz analysis indicates that the US is not likely to be among them:
“Experts believe the United States will be one of the countries least affected by the EU’s carbon border tax, which doesn’t provide much incentive for the nation to adopt a carbon price or tax. According to the 2021 report ‘A Storm in a Teacup: Impacts and Geopolitical Risks of the European Carbon Border Adjustment Mechanism,’ the costs to the United States related to CBAM are anticipated to be about $108 million in 2026 and only about $27 million by 2035.”
The analysis notes that domestic political realities make new carbon laws unlikely to pass in the US, due to an aversion to using taxation as a solution to a problem. While the federal government has set a social cost of carbon, any major carbon trading legislation is unlikely to materialize anytime soon. For now, carbon management and reduction for companies in the US will likely remain on a purely voluntary basis.