Policymakers face a sharp dilemma. Building a green grid requires massive upfront investment, which often pushes electricity prices higher in the short term. If carbon taxes then hit heavy industries like steel or cement, these firms might relocate to regions with cheaper, dirtier power. This is carbon leakage.
To stop this, governments can use Carbon Border Adjustment Mechanisms (CBAM). This tool applies a fee to imported goods based on their carbon content, ensuring domestic manufacturers aren't undercut by high-emission competitors. It levels the playing field. By taxing the carbon footprint of imports, the policy protects local industry while incentivizing global trade partners to decarbonize.
Financial support also plays a role. Rather than just handing out subsidies, governments can offer
