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The Economic Case for Europe’s Carbon Border Tax

The European Union’s carbon border tax, while imperfect, is a justified measure that is unlikely to do significant damage to the global trading system. But it could stoke tension among friends – particularly between the EU and the US, though perhaps not in the way one might expect.

MILAN – October has already brought a significant change to the global trading system: for the first time, a major trading power has placed an import tax on carbon. Since using the word “tax” (or “tariff”) would have been awkward, the European Union went with “Carbon Border Adjustment Mechanism” (CBAM). But a tax is what it is, and the economic rationale for it is straightforward.