What is carbon leakage and how does CBAM address it?

Preventing production shift to less regulated regions

Carbon leakage refers to the phenomenon where companies move their production to countries with less stringent climate policies to avoid carbon costs. This can lead to an increase in global emissions, undermining climate efforts.

CBAM addresses carbon leakage by applying a carbon price to imported goods, thereby reducing the incentive for companies to relocate their production outside the EU.

By ensuring that carbon costs are factored into imports, CBAM aims to maintain a level playing field between EU and non-EU producers while encouraging global climate action.