Avoiding carbon leakage in a fragmented world
A company moving production from the EU (with its carbon pricing) to a country without a price sees immediate cost savings. The CBAM tariff makes that trade-off less attractive by charging importers a fee proportional to the embedded emissions. The mechanism only works if the fee tracks the actual carbon intensity of production, which requires real data from trading partners and constant calibration.
The political boundary problem
A CBAM is a unilateral tool: the EU sets the terms. Non-EU producers either comply with the tariff or exit the market. Developing nations view it as protectionism disguised as climate policy, since it penalizes their cheaper production methods. Negotiations over reciprocal credit systems (giving credit if a partner country has its own carbon price) remain contentious, and most major trading partners have not yet struck deals that would lower or eliminate the tariff.