Trade barriers, such as the China–United States trade war, are government-induced tariffs or sanctions on imported goods to reduce the trade deficit. Today, a new form of trade barriers has emerged – the Carbon Border Adjustment Mechanism (CBAM). The EU proposed the 2030 Fit for 55 Package in July 2021, which includes the CBAM and requires importers to declare the embedded carbon emissions of products and surrender the CBAM certificate as the carbon emissions payment of imported products. The purpose of establishing such a barrier is to avoid carbon leakage, preventing companies from relocating factories to countries with relatively loose carbon emissions regulations and promoting practical carbon reduction.
Once countries establish a CBAM, businesses will face the following four challenges coming from governments and industries. In face of carbon emission-related uncertainties, companies should deploy carbon reduction actions in advance to minimize risks.
Carbon fee, carbon tax and carbon reduction cost:
In order to be in line with the international market, countries across the globe have successively planned to introduce a domestic carbon trading scheme or impose a carbon fee or carbon tax. Among the countries that have adopted a carbon tax, Sweden levies the highest tax at 120 U.S. dollars per tonne of carbon dioxide equivalent. It is worth noting that although many countries have introduced carbon taxes, the price is generally low, mostl