The most direct tool is the Carbon Border Adjustment Mechanism (CBAM). This policy levies a fee on carbon-intensive imports like steel, cement, and aluminum. By taxing goods based on their actual emissions, governments level the playing field. If a factory moves from a regulated zone to a high-emission zone, the carbon tax at the border ensures the cost savings disappear. This makes shifting production to avoid rules economically irrational.
To work, these taxes must sync with existing domestic carbon prices. Coordination is everything. If the EU taxes imports but the US does not, trade tensions rise. Policymakers should also offer rebates to exporters to avoid double taxation. This maintains competitiveness while keeping the carbon price signal intact.
International clubs also play a role. If many large economies agree on a baseline carbon price,
