Current Situation and Policies Recommendation for Carbon Border Adjustment Mechanism (CBAM) in Developing Countries

Carbon border adjustment mechanism (CBAM) is a proposed policy that would tax imports from countries with less stringent carbon pricing than the EU, and subsidize exports to those countries. This is intended to level the playing field for European businesses, which face higher costs due to carbon pricing policies. However, the introduction of a CBAM has raised concerns among developing countries, who are often more reliant on EU exports and have less capacity to comply, as it could negatively impact their economic development and transition to a low-carbon economy. To date, the EU has provided significant support to developing countries through preferential agreements that reduce tariffs and quotas on the EU market. However, the implementation of CBAM has changed the available advantages for developing countries, as CBAM can reduce this relative advantage if it is applied to exports from developing countries, but is exempt from many exports from developed countries, as they originate from countries that have introduced equivalent domestic carbon prices or due to the production processes of companies that are more efficient in reducing carbon emissions. Therefore, this paper examines the challenges of CBAM for implementation in developing countries and discusses ways to improve CBAM to make it fairer and more equitable for these countries.