Authors: Novia Xu and Nadya Daulay, CSIS The Carbon Border Adjustment Mechanism (CBAM) is the manifestation of the European Union’s (EU) ambitions to lead in global climate policy and the reduction of carbon leakage. Though the design of CBAM is acclaimed as fully compliant with international trade regulations, concerns over its impacts persist, especially for developing countries like Indonesia. Indonesia provides an interesting example as bilateral trade between Indonesia and the EU has increased by approximately 15 per cent in the last decade, with a widening trade balance surplus for Indonesia. The ongoing negotiation for the Indonesia–EU Comprehensive Economic Partnership Agreement (IEU–CEPA) would also be Indonesia’s most comprehensive and ambitious one-on-one Free Trade Agreement. CBAM works as a mechanism to balance the carbon price paid for EU products covered by the EU Emissions Trading System and the price paid for imported commodities. Businesses that import certain products into the EU are required to buy CBAM certificates to cover the difference between the carbon price paid in the country of production and the price of carbon applied under the EU Emissions Trading System. The EU expects climate laggards that interact with the EU market will adopt stricter climate policies and […]
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