1. Carbon Border Tax (Carbon Border Adjustment Mechanism, CBAM)
Purpose: The primary purpose of a carbon border tax, or CBAM, is to address carbon leakage and encourage emission reductions in domestic and imported products.
Mechanism: CBAM imposes a carbon price or tax on certain imported goods based on their associated carbon emissions during production. It aims to ensure that imported products are subject to a similar carbon pricing mechanism as domestically produced goods. This discourages carbon-intensive production practices and levels the playing field for domestic industries.
Objective: By imposing a carbon border tax, countries or regions seek to protect their domestic industries, promote global emission reductions, and prevent the outsourcing of carbon emissions to regions with lax environmental regulations.
2. Carbon Credits (Carbon Offsets)
Purpose: Carbon credits, or carbon offsets, are used to compensate for or mitigate greenhouse gas emissions that cannot be eliminated directly. They are a part of carbon trading and emissions reduction strategies.
Mechanism: Carbon credits are generated through activities or projects that reduce or remove greenhouse gas emissions. These credits represent a reduction of one metric ton of carbon dioxide equivalent (CO2e) emissions. Entities can purchase these credits to offset their own emissions, essentially financing emission reduction projects elsewhere.
Objective: The main objective of carbon credits is to incentivize emission reduction activities in various sectors and regions. They provide a market-based approach to reducing emissions by financially rewarding projects that sequester or reduce greenhouse gases. Carbon credits can be used by companies or governments to meet emissions reduction targets or as part of a corporate sustainability strategy.
In summary, a carbon border tax is a policy tool used to address carbon leakage and ensure fair competition between domestic and imported products by imposing a carbon price on imported goods. Carbon credits, on the other hand, are units representing emissions reductions achieved through specific projects and are used to offset emissions in other sectors or regions. Both mechanisms aim to contribute to the reduction of greenhouse gas emissions, but they operate in different ways and serve different purposes within the context of climate change mitigation.
