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Carbon tariffs and taxes: Economic tools for mitigating climate change

In: CNB Global Economic Outlook - July 2025

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  • Jan Hosek

Abstract

The EU Carbon Border Adjustment Mechanism (CBAM) is a climate policy tool designed to reduce greenhouse gas emissions and prevent carbon leakage. CBAM imposes a levy on imports of carbon-intensive goods in order to boost the competitiveness of domestic European producers and encourage foreign manufacturers to transition to low-carbon technologies. In 2027, the European ETS II (Emissions Trading System) is setto be launched. Media as well as academic publications discuss estimates of the impact this will have on consumer price developments, and on end customers. Once the second phase is implemented, the entire ETS system should cover up to 85% of greenhouse gas emissions in Europe. Preliminary calculations suggest that the increase in inflation will be noticeable, and an additional inflationary impulse could come in 2030, when the price cap on emission allowances is set to be removed. This article analyses the principles of carbon border tax and taxes, as well as their effects on international trade, the social sphere, and inflation.

Suggested Citation

  • Jan Hosek, 2025. "Carbon tariffs and taxes: Economic tools for mitigating climate change," Occasional Publications - Chapters in Edited Volumes, in: CNB Global Economic Outlook - July 2025, pages 16-23, Czech National Bank, Research and Statistics Department.
    • Handle: RePEc:cnb:ocpubc:geo2025/7
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