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

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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