A carbon tariff or border carbon adjustment (BCA) is an eco-tariff on embedded carbon. [1] [2] The aim is generally to prevent carbon leakage from states without a carbon price. [1] Examples of imports which are high-carbon and so may be subject to a carbon tariff are electricity generated by coal-fired power stations, iron and steel from blast furnaces, and fertilizer from the Haber process.
Currently, only California applies a BCA—for electricity—while the European Union and the United Kingdom will apply BCAs from 2026 and 2027, respectively. Several other countries and territories with emissions pricing are considering them. [3]
The California Cap-and-Trade Program has a carbon border adjustment mechanism for imported electricity since 2011, [21] and is required to report to the Legislature in 2025 on a potential extension of border adjustment to physical products. [22]
Current WTO rules may prohibit some types of carbon border adjustment. In 2024, the United States Democrats (then in government) stated that carbon border adjustment does not amount to a carbon tax but instead to a fee that is permissible under World Trade Organization(WTO) rules,. [23] The WTO itself has not come to a conclusion. [24]