EU CBAM’s Global Reach: A Ripple Effect

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EU CBAM’s Global Reach: A Ripple Effect

21 February 2024 / Report

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The introduction of the EU Carbon Border Adjustment Mechanism, a carbon tariff imposed on imported carbon-intensive products, has set in motion a ripple effect on global carbon markets. While the full extent of these ripples remains to be seen, businesses can future-proof themselves for a new carbon pricing landscape by adopting an internal carbon price that assigns a monetary value to their own carbon emissions.

Trusted Insights for What’s Ahead™

The EU Carbon Border Adjustment Mechanism (CBAM) is serving as a catalyst for the adoption of climate pricing polices worldwide, a momentum that is expected to keep building. Several EU trade partners, including Australia, India, and the US, are actively considering or pursuing similar measures. The UK will introduce its CBAM in 2027. This trend is likely to continue as countries recognize the potential to generate revenues while pursuing their climate goals.
In the coming decade, we anticipate a convergence of global carbon pricing toward the EU Emissions Trading System (EU ETS) benchmark. In 2023, carbon prices varied widely across jurisdictions, ranging from US $1 per ton in Kazakhstan to US $155 in Uruguay, but as more countries adopt emissions trading or carbon tax schemes, we expect a worldwide shift toward the EU ETS benchmark, which is anticipated to be around €100 per ton of CO2 emitted. This convergence could foster a more efficient and equitable approach to addressing climate change on a global basis.
Internal carbon pricing (ICP) can help companies proactively manage and reduce their exposure to climate transition risks, while positioning themselves for success in a low-carbon economy. By adopting ICP mechanisms, businesses can internalize the cost of carbon emissions, drive innovation toward cleaner technologies, and secure a competitive advantage in the future. Globally, an increasing number of companies are using ICP; in 2022, the number implementing ICP rose by 12% and 40% compared to 2021 and 2020, respectively, reaching 1,203 companies. These companies use the insights to inform decisions on capital investment and to measure, model, and manage financial risks.

The introduction of the EU Carbon Border Adjustment Mechanism, a carbon tariff imposed on imported carbon-intensive products, has set in motion a ripple effect on global carbon markets. While the full extent of these ripples remains to be seen, businesses can future-proof themselves for a new carbon pricing landscape by adopting an internal carbon price that assigns a monetary value to their own carbon emissions.

Trusted Insights for What’s Ahead™

The EU Carbon Border Adjustment Mechanism (CBAM) is serving as a catalyst for the adoption of climate pricing polices worldwide, a momentum that is expected to keep building. Several EU trade partners, including Australia, India, and the US, are actively considering or pursuing similar measures. The UK will introduce its CBAM in 2027. This trend is likely to continue as countries recognize the potential to generate revenues while pursuing their climate goals.
In the coming decade, we anticipate a convergence of global carbon pricing toward the EU Emissions Trading System (EU ETS) benchmark. In 2023, carbon prices varied widely across jurisdictions, ranging from US $1 per ton in Kazakhstan to US $155 in Uruguay, but as more countries adopt emissions trading or carbon tax schemes, we expect a worldwide shift toward the EU ETS benchmark, which is anticipated to be around €100 per ton of CO2 emitted. This convergence could foster a more efficient and equitable approach to addressing climate change on a global basis.
Internal carbon pricing (ICP) can help companies proactively manage and reduce their exposure to climate transition risks, while positioning themselves for success in a low-carbon economy. By adopting ICP mechanisms, businesses can internalize the cost of carbon emissions, drive innovation toward cleaner technologies, and secure a competitive advantage in the future. Globally, an increasing number of companies are using ICP; in 2022, the number implementing ICP rose by 12% and 40% compared to 2021 and 2020, respectively, reaching 1,203 companies. These companies use the insights to inform decisions on capital investment and to measure, model, and manage financial risks.

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Authors

Ioannis Siskos

Senior Research Fellow, Environmental, Social & Go…
The Conference Board

Anuj Saush

ESG Center Leader, Europe
The Conference Board

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