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The EU’s Carbon Border Adjustment Mechanism (CBAM) is believed to be the world’s first border tax on goods based on their carbon emissions.

CBAM measures the price paid for carbon emissions in the production of certain goods that are imported into the EU in order to “ensure the carbon price of imports is equivalent to the carbon price of domestic production”. It currently applies to goods such as steel, iron, cement, aluminium, fertilisers and electricity.

However, while the EU’s mechanism is believed to be the first, it almost certainly won’t be the last.

Japan

Japan’s carbon border levy will be slowly introduced from 2028, primarily on larger fossil fuel importers such as commodity brokers, electricity companies and other energy aspects.

The full details have yet to be announced but the initial amount charged is expected to be very low, increasing gradually during the rollout.

Mirroring the development of the EU’s carbon-tax framework, the Japanese government announced it was introducing carbon credits and an emissions trading system (ETS) for domestic producers last year; this marks a first step towards hitting its net zero goals for the world’s fifth-largest carbon polluter.

This would be set up by a forum called the “GX League” for carbon trading. Slated to begin this fiscal year on a voluntary basis, the system should become fully operational by 2027, by which point it will be mandatory for Japanese firms.

Other Asian nations – such as Singapore, Hong Kong and Vietnam – have brought in some version of a carbon trading system or a tax on fossil fuel-intensive goods internally but have yet to implement a levy on goods at the border.

Australia

While Canberra hasn’t yet implemented any CBAM policies, the federal government is investigating different options.

Chris Bowen, Australian minister for climate change, announced in August 2023 that the Australian government would work towards introducing its own version of CBAM.

Bowen’s announcement followed the 2023 introduction of the Safeguard Mechanism, which is the Australian government’s plan to reduce the country’s carbon footprint, primarily by targeting emissions-intensive sectors like mining, waste and manufacturing.

The department later announced that professor Frank Jotzo, of the Australian National University, had been asked to review the country’s options for solving “carbon leakage”. His review will analyse the EU CBAM to see if aspects of the policy can be replicated in Australia.

Canada

While a lot of attention has been placed on the US, its northern neighbour has made strides towards introducing a carbon border tax.

In 2021, Canada launched a consultation on a CBAM, which sought industry opinion on the matter. Since then, there has been no official word on the next steps.

A paper, published by Canada’s finance department after the consultation closed, explored the benefits and drawbacks of a CBAM proposal, but stopped short of committing to any future policy action. Discussions are said to be ongoing with the US, EU and other key trading partners.

Canada has already introduced a carbon tax internally, which is set to rise by CA$15 per tonne every year until 2030. This would represent a tripling of the carbon price between 2022 ($50) and 2030 ($180).

UK

The Department for Energy, Security and Net Zero announced at the end of last year (18 December) that it will implement a UK version of CBAM by 2027.

The delivery of a UK CBAM will be “subject to further consultation in 2024” and will apply to imports of aluminium, cement, ceramics, fertiliser, glass, hydrogen, iron and steel.

Under a UK CBAM, businesses exporting the affected goods into the UK will be required to pay a levy if the country of origin has a lower carbon price than the UK or no carbon price at all.

Published by the Institute of Export & International Trade

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