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Cutthroat Competition for Personal Gain

The CBAM, a greenhouse gas emissions reduction strategy slated for 2026 within the EU, could potentially provide an incentive for both EU and global industries to decrease emissions, as per a recent study by US economists published in NBER. However, the paper raises some contentious points,...

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Cutthroat Competition for Personal Gain

A Casual Take on the EU's Carbon Border Adjustment Mechanism (CBAM):

Hey there! Let's talk about the Carbon Border Adjustment Mechanism (CBAM) the EU's gonna roll out in 2026. This baby aims to stir up both European and global industries to slash greenhouse gas emissions, but it's not all sunshine and rainbows, according to a study by some clever folks over at the National Bureau of Economic Research (NBER).

These American economists, Kimberly Clausing, Jonathan Kolmer, Allan Xiao, and Catherine Wolfram, dropped a report titled "Global Impacts of Carbon Border Adjustment Mechanisms." They ran some fancy numbers to see how carbon border adjustment policies affect market trends. The study focused on two sectors beefed up by CBAM in its launch phase: aluminum and steel, which account for 14% of global emissions and over a trillion bucks in international trade.

In essence, companies hustling goods into the EU will have to confess the emissions associated with their production. At first, the EU's gonna regulate six carbon-intensive sectors: iron and steel, aluminum, cement, electricity, fertilizers, and hydrogen fuel. Importers will be forced to cop carbon certificates at the EU carbon price within the Emissions Trading System (ETS). The idea is to compensate for emissions and give a fair shake to both foreign and homegrown European producers.

CBAM's gonna be a gradual roll-out in the EU from 2026 and in the UK from 2027. Countries like Canada, Australia, and Taiwan have also shown interest in this mechanism, while China has already expanded its emissions trading system to sectors that match CBAM.

The main goal here is to boost the competitiveness of European companies. The authors of the study point out that the introduction of carbon taxes could lead to losses in profits worth up to $15 billion per year for the EU and UK, but could also generate significant revenues: up to $20 billion for the EU and UK, and potentially $180 billion if China jumps on board.

Now, as for the CBAM's overall effectiveness, the authors have five key conclusions. First: Carbon taxation causes a drop in global supply, increased prices, but reduces environmental harm, leading to a boost in social welfare with a reasonable carbon price. Second: Under CBAM, the sales of goods shimmy towards unregulated markets, but regulated markets might still see increased revenues with moderate carbon taxation.

Third, CBAM boosts the global competitiveness of producers in regulated markets, leveling the playing field by imposing carbon regulation on imported goods. However, "dirty" companies might take a hit of up to 15%. Fourth, CBAM cuts emissions in unregulated markets by about one-third. Fifth and finally: the authors don't believe CBAM puts unnecessary pressure on low-income countries—clean production methods can prosper under the EU's carbon regulation. For example, aluminum production in Mozambique, fueled by hydropower, stands a chance to compete in the EU market.

There you have it, folks! CBAM: A potential game-changer for the climate, but not without its challenges. Don't say I didn't warn you!

  1. The EU's Carbon Border Adjustment Mechanism (CBAM), scheduled for implementation in 2026, is designed to prompt both local and global industries to lower greenhouse gas emissions, as outlined in the study by economists from the National Bureau of Economic Research (NBER).
  2. Companies importing goods into the EU will be required to disclose emissions tied to their production processes, with the EU initially regulating six carbon-intensive sectors: iron and steel, aluminum, cement, electricity, fertilizers, and hydrogen fuel.
  3. Under CBAM, importers will be obligated to acquire carbon certificates at the EU carbon price within the Emissions Trading System (ETS) to compensate for emissions and create a level playing field for European and foreign producers.
  4. The CBAM will be phased in gradually, starting in the EU in 2026 and in the UK in 2027, with countries like Canada, Australia, and Taiwan expressing interest in adopting the mechanism, while China has already expanded its emissions trading system to similarly targeted sectors.
  5. If successful, the CBAM could generate significant revenues for the EU and UK—up to $20 billion—and potentially over $180 billion if China participates, while also reducing emissions and boosting social welfare with reasonable carbon pricing.
  6. The study suggests that CBAM could result in a 15% reduction in profits for "dirty" companies, but it can also help foster clean production methods, allowing countries like Mozambique—which uses hydropower for aluminum production—to compete in the EU market.
CBAM, a forthcoming EU initiative slated for 2026, aims to spur European and worldwide industries towards decreasing greenhouse gas emissions in line with its assertions. Yet, a recent study by US economists, disseminated by NBER, exposes inconsistencies in this system. These experts contend that CBAM will bolster the domestic advantage of adopting countries, lower emissions, and stimulate the implementation of analogous regulations in other significant regions.

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