Next time you grab your MacBook, Nike sneakers, or an oat milk latte, consider this: while the US and other high-income countries have reduced their domestic emissions, the carbon footprint of everyday products has been outsourced to factories overseas—where climate regulations are weaker, emissions are higher, and environmental oversight is limited. This urgent issue demands our immediate attention.
Despite declining domestic emissions in high-income countries, the situation is complex. Many goods we rely on, such as electronics, clothing, and food packaging, are produced in countries with weaker climate regulations. As a result, while emissions within national borders may decrease, the global consumption footprint remains high, concealed within international supply chains.
The Global Scale of Imported Emissions
A significant portion of global carbon emissions is linked to internationally traded goods. Some countries primarily import these embedded emissions, while others serve as exporters. However, high-income countries play a unique and crucial dual role, both importing and exporting carbon emissions, underscoring the truly global nature of the issue.
- Territorial CO₂ emissions refer to emissions generated within a country’s borders, including from factories, energy production, and transportation.
- Consumption-based CO₂ emissions are calculated as production-based emissions minus emissions embedded in exports and imports, providing a more accurate picture of a country’s total emissions.
If a country’s consumption-based emissions exceed its production-based emissions, it is considered a net importer of carbon dioxide; conversely, if the reverse is true, it is a net exporter. This distinction is important in understanding the dynamics of global emissions and trade.
The trend of high-income countries relying on goods from regions with weaker climate regulations is driven by stricter environmental policies in developed regions, particularly the EU. These policies have raised production costs above those in developing countries, where lower wages and looser climate regulations provide a competitive advantage. Moreover, this cost gap has driven carbon-intensive industries to move operations to developing countries specifically to bypass strict domestic emissions policies—a practice known as carbon leakage. While this reduces reported domestic emissions in high-income countries, it drives up global emissions as consumption-based emissions remain high due to carbon embedded in imports.
According to Our World in Data, territorial emissions in high-income economies have declined since 1990. However, the gap between territorial emissions and consumption-based emissions has generally widened.
In 2022, the US—the highest emitter among high-income countries and the second highest globally—had 560 million metric tons (MMT) of net imported CO₂, 11% of its total emissions. The EU, at 730 MMT, accounted for 27%—roughly half of Africa’s total carbon footprint—while the UK, with 175 MMT, had the highest share at 56% of its emissions.
Meanwhile, net exported emissions from developing countries have steadily risen since 1990. In 2022, China and India exported 10% of their production-based emissions—1,000 MMT and 260 MMT, respectively. Africa’s share reached 4% (60 MMT), and Brazil’s rose to 5% (25 MMT), underscoring the growing role of developing countries in supplying carbon-intensive goods.
Cutting domestic emissions in high-income countries while increasingly relying on imports with high-carbon content is like a carefully tended garden where thriving plants mask creeping weeds—domestic emissions appear lower, but imported emissions quietly accumulate. Reversing this hidden buildup is critical to achieving true global emissions cuts.
Addressing Imported Emissions Through CBAMs
Several high-income countries are introducing Carbon Border Adjustment Mechanisms (CBAMs) to curb high-carbon content in imports and prevent carbon leakage. These mechanisms apply a carbon price to imported goods, ensuring that products from regions with weaker climate regulations—where emissions limits are lower, enforcement is lax, and carbon pricing is absent—do not gain an unfair cost advantage over domestic producers.
- European Union: In October 2023, the EU launched its CBAM, covering steel, aluminum, cement, fertilizers, hydrogen, and electricity. Importers must report carbon intensities and, by 2026, purchase certificates for embedded emissions. Only countries with carbon taxes and emissions trading systems (explicit carbon pricing) can lower their CBAM liability, while those without these measures may face higher tariffs.
- United States: Multiple CBAM-like bills (e.g., PROVE IT Act and Clean Competition Act) have been introduced in Congress, but policy shifts—particularly during the Trump administration—may delay progress. Unlike the EU, the US favors a broader approach considering various climate policies that reduce CO₂ emissions, not just explicit carbon pricing.
- United Kingdom: The UK plans to launch its CBAM in January 2027, targeting aluminum, cement, fertilizers, hydrogen, iron, and steel while excluding glass and ceramics.
Developing Countries Raise Concerns
Developing economies argue that CBAMs create trade barriers, unfairly disadvantaging their industries. They emphasize that high-income countries, which historically benefited from fossil fuels, bear greater responsibility for emissions. China and India fear CBAMs could hinder economic growth, while African exporters worry about losing competitiveness in raw materials markets. This has led to ongoing debates at the World Trade Organization (WTO) over whether CBAMs violate non-discrimination principles by favoring domestic industries over foreign competitors.
In light of these concerns, experts in environmental law and policy, such as Goran Dominioni and Daniel C. Esty, offer a constructive path forward. Their paper recommends CBAMs that integrate explicit carbon pricing tools—such as carbon taxes and emissions trading systems—with implicit pricing through energy and fuel taxes. This comprehensive approach seeks to balance trade obligations and climate goals, providing policymakers with a practical way to advance a balanced global response to climate change.
Conclusion
To build on this balanced approach, innovative strategies are key to ensuring that developing countries continue developing while high-income countries leverage CBAMs to spur global decarbonization. When designed with fairness and ambition, carbon border measures can evolve from contentious trade barriers into powerful tools—promoting shared responsibility, encouraging cleaner production methods worldwide, and ultimately driving a collective transition toward a low-carbon future.
Reader Question:
How can policymakers design CBAMs to drive decarbonization in high-income countries while enabling industries in developing countries to transition to low-carbon production methods?
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The Institute for Climate and Sustainable Growth is a collaborator of the UChicago Sustainability Dialogue, but is not responsible for the content.