The EU CBAM in practice: the danger of resource shuffling

Author(s): Andrei Marcu, Michael Mehling, Aaron Cosbey, Laure Fleury

•⁠ ⁠Resource shuffling is a carbon leakage avoidance strategy where foreign producers or traders manipulate accounting and trade flows by exporting their cleanest, low-carbon goods to the EU (to minimize the Carbon Border Adjustment Mechanism (CBAM) cost) while diverting their dirtier, high-emission production to unregulated markets.
•⁠ ⁠None of the assessed options (including doing nothing, targeted stopping of certain shuffling types, or stopping all shuffling via default values, and solutions external to the CBAM or pausing CBAM) are a perfect solution, and each involves significant trade-offs.
•⁠ ⁠The most pragmatic path forward is a strategy that accelerates EU industrial decarbonization while also backloading the phase-out of free allowances under the EU ETS to provide critical transitional support.