Climate Clubs Recommended as CBAM Alternative

So-called climate clubs could be more successful in extending the reach of carbon pricing than schemes that tax CO2-intensive imports, such as the EU Carbon Border Adjustment Mechanism (CBAM). This argument has been made by Kaya Advisory, a specialist climate consultancy, in a paper commissioned by the Inevitable Policy Response (IPR) and published by the Principles for Responsible Investment (PRI). The report suggests that carbon pricing’s use as a tool by policymakers will continue to grow, and although a form of CBAM is currently under negation in the EU Parliament and Council,significant hurdles” would need to be overcome for it to be successful. The report suggests climate clubs may be a better solution to evolve global carbon pricing, highlighting their flexibility, inclusivity and potential to accelerating the role of carbon pricing in the transition, as well as their being more politically feasible. Noting how the concept of ‘friendshoring’ has developed in response to the need to realign supply chains in response to geopolitical risks, the paper says trading agreements between like-minded nations may include common approaches to carbon pricing. “Embedding carbon-aligned policies can and likely will become a weapon (of sorts) which incentivises alignments that also achieve domestic national policies, up to and including protectionism for industry.” 

 

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