Addressing Carbon Leakage in the EU: Making CBAM work in a Portfolio of Measures

As part of its “Fit for 55” package of legislative proposals released in July 2021 to operationalize the enhanced climate ambition under the “European Green Deal” (EGD), the European Commission (EC) issued a legislative proposal for a regulation establishing a “Carbon Border Adjustment Mechanism” (CBAM). Representative of a type of policy instrument more commonly known as border carbon adjustments (BCAs), the CBAM is intended to provide a safeguard against the risk of emissions leakage, that is, the relocation of carbon-intensive economic activities from the European Union (EU) to third countries due to the cost of EU climate policy ambition on production, domestic consumption and investment decisions.

This report builds on extensive previous work by ERCST, surveying the rationale and policy options for a CBAM (Marcu et al. 2021a), exploring the challenges of the differentiated characteristics of the various candidate sectors (Marcu et al. 2021b), elaborating what we see as the most appropriate design elements for CBAM (Marcu et al. 2021c), and assessing the European Commission’s proposed CBAM and its history to date (Marcu et al. 2021d).