The European Union Carbon Border Adjustment Mechanism as a Green Tax Policy Instrument

Abstract

This article aims to analyse the conformity of the European Union‘s Carbon Border Adjustment Mechanism (CBAM), considering tax principles as an environmental and fiscal policy instrument and its role in promoting a healthy environment and global decarbonisation. Literature highlights reasons for the CBAM‘s relevance, promoting carbon leakage risk reduction and encouraging less advanced countries to lower emissions through carbon diplomacy. This mechanism is expected to significantly impact the EU‘s partner economies, particularly developing ones reliant on exports. Thus, the paper’s goal is to advance academic research and understand its role in achieving environmental neutrality. The study applies the legal research method to tax principles, and Regulation (EU) No 2023/956 was examined for this purpose. The results show that CBAM is presented as an instrument that promotes tax neutrality, being in line with tax principles. Furthermore, CBAM promotes legal certainty, allowing companies to make investment decisions on decarbonising industrial processes in the long term. In addition, this mechanism is a step towards guaranteeing the promotion of a healthy environment, a right recognised by the United Nations. This study highlights the importance of CBAM as an environmental policy instrument and a fiscal mechanism that promotes fiscal justice and environmental sustainability.