The Carbon Border Adjustment Mechanism (CBAM): A New Approach to Climate Change Regulation and Its Implications for National Security, Labour, Trade, and Data Flows

The Carbon Border Adjustment Mechanism (CBAM) is tool designed to address the challenge of reducing greenhouse gas emissions while ensuring fair competition for industries within the EU. The paper analyses the CBAM' for regulating climate change and its broad ramifications. The CBAM is expected to limit greenhouse gases and contribute to global efforts to combat climate change. This article explores key features of the mechanism, looking at its guiding principles, expected advantages, and potential drawbacks. The analysis concludes that the European Union's Carbon Border Adjustment Mechanism (CBAM) exerts a negative impact on industries, highlighting the necessity of integrating the CBAM within the overarching framework of allowance allocation. Such integration would ensure the design of an allowance allocation system that preserves cost efficiency across sectors. Furthermore, the study suggests that a higher, more consistent carbon price in China could serve as an effective countermeasure to mitigate the adverse effects of the EU CBAM, thereby stabilizing the cost-effectiveness of various industries. Notably, the impact of the EU CBAM on industry cost efficiency would significantly diminish once the Chinese carbon price reaches 60 RMB per ton. Lastly, the research indicates that, beyond a certain export volume threshold to the EU, efforts to limit exports become increasingly ineffective in reducing the CBAM’s impact.