The European Union's efforts to become climate neutral are a significant development in the fight against climate change. The carbon border tax, also referred to as the Carbon Border Adjustment Mechanism (CBAM), is a key component of the EU's strategy to reduce greenhouse gas emissions and promote sustainability.

The trial period for the bloc's carbon border tax came into effect on October 1. So, what exactly is CBAM and what will it achieve?

Under this mechanism, the EU's trading partners will have to report the carbon emissions related to their exports of iron, steel, cement, aluminum, fertilizer, hydrogen and electricity.

READ MORE

Will Slovakia's new coalition government support Ukraine?

UK musicians say Brexit is killing their European careers

Germany welcomes China's support for G20 debt

The key objective of the carbon border tax is to ensure that imported goods to the EU adhere to the same environmental standards as those produced within the bloc. It aims to prevent "carbon leakage," which occurs when businesses relocate production to countries with lower environmental standards to avoid EU regulations, thereby exporting their emissions.

However, the bloc is facing some resistance to this initiative from its trading partners, including China.

"Chinese producers who have CO2 emissions associated with their production will face increased costs," Lauri Myllyvirta, co-founder and lead analyst of the Finland-based Centre for Research on Energy and Clean Air, told CGTN. "And China argues that now that they have their own climate policies in place, so they shouldn't face the costs of the U.S. climate policies on top," he added.

Challenge for climate policies

However, if we compare the costs imposed by the EU policies versus those in China, the EU's policy is focused on "creating stronger incentives to reduce emissions. So in that sense, there is a case for leveling the playing field." 

But Myllyvirta hopes that China, along with the EU's other trading partners, will see this as an opportunity for the cleaner producers in their countries to gain an edge and for this to help their own transition. The new policy will present challenges for EU importers.

"Establishing how much CO2 was emitted while a car was produced in China, for example, and then imported into the EU will be a challenge and requires better reporting mechanisms," the analyst explained. 

However, these reporting tools are needed anyway. "China has a carbon market for its power sector and more of these are being created," said Myllyvirta. "Overall, regardless of the kind of policy that you're using, whether it's a carbon market or another type of climate instrument, you do need good data on emissions. So that's a common challenge for all types of climate policies." 

Subscribe to Storyboard: A weekly newsletter bringing you the best of CGTN every Friday