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Carbon Pricing: What Role for Border Carbon Adjustments?

Carbon Pricing: What Role for Border Carbon Adjustments?

Year Published

2021

Contributing Organizations

International Monetary Fund (IMF)

Type of Resource

Research/Insights Report

Languages

English

Relevant Topics

Core Topic
Carbon Markets & Carbon Finance
Topic 2
Climate Policies & Frameworks

Target Audience

Real Economy Corporates
Governments & Policymakers

Relevant Geography

Global
Carbon Pricing: What Role for Border Carbon Adjustments?

Resource Description

This resource examines border carbon adjustments (BCAs) as complementary tools to carbon pricing, assessing their purpose, design, trade implications, and potential role in climate policy.

Why This Matters

As carbon pricing expands unevenly, BCAs offer a way to preserve fairness and environmental integrity while supporting deeper decarbonization, though global cooperation remains essential.

Key Insights

  • BCAs apply charges on the carbon content of imports to address uneven global carbon pricing
  • They target competitiveness and leakage risks in energy-intensive, trade-exposed sectors
  • Effective design depends on choices around sector scope, benchmarks for carbon content, export treatment, and exemptions
  • BCAs may modestly incentivize cleaner production abroad but are less effective than collaborative approaches such as international carbon price floors
  • Legal uncertainties under trade rules and risks of retaliation highlight the need for transparent design and dialogue

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