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One of the primary challenges in any policy effort to reduce emissions is containing and accounting for the potential movement of emissions intensive industries and companies to markets without similar restrictions. If one nation or group of nations enacts policies to reduce emissions, emissions progress can be undermined if industry simply moves to another nation to avoid the higher costs of operating in a carbon constrained environment.
It is this issue—known as “carbon leakage”—that led to the European Union’s moves to establish a Carbon Border Adjustment Mechanism (CBAM), and has spurred legislation introduced by Senator Chris Coons and Representative Scott Peters here in the U.S.
Given the U.S. Chamber’s focus on business-led climate solutions and our global membership, we have conducted extensive member outreach on this topic. We commented on the EU’s proposed CBAM framework last year, and again this summer when the detailed framework was released alongside Europe’s “Fit for 55” agenda. Most recently, we have developed feedback for Congress in the form of a set of principles for consideration in the development of any Border Carbon Adjustment legislation. These were shared with Congressional staff in August and are being released publicly today.
These principles are intended to help identify issues and obstacles that could hinder an effective approach to addressing carbon leakage. In that spirit, we note that prior to adoption the EU undertook extensive dialogue with industry over the period of many years. Indeed, this consultation is ongoing as the EU prepares for a 2026 implementation, which could be delayed. Here in the U.S., the conversation has just begun, so much more time and effort is needed to work through a variety of concerns that could lead to unintended consequences and ineffective policy.
Beyond timing, there are a number of practical implementation concerns that must be addressed. First and foremost, we strongly believe that any CBAM must be paired with a market-based mechanism to reduce emissions (which the Chamber supports), or it risks being impossible to implement. Other topics covered in the Chamber’s principles include unintended consequences associated with the affordability of products needed for clean energy, trade considerations such as the potential for retaliation against U.S. companies, compatibility with the EU’s mechanism, and several others.
We intend to continue to engage in constructive dialogue with members, policymakers and the international community to help forge solutions to both these specific CBAM issues, and the broader climate change issue. Businesses are continuing to lead the way in the development of technologies necessary to meet ambitious climate goals and remain committed to durable and workable solutions to complex issues such as carbon leakage.