Europe's carbon border tax will cut emissions by 5% — but only if supply chains don't shift

Europe's new carbon border tax will reduce carbon emissions from its imports by about 5%. This happens because the tax makes imported goods more expensive if they come from countries with weaker climate rules.

The European Union is trying to force other countries to clean up their manufacturing by taxing carbon-heavy imports. This paper shows that the tax works, but only if companies don't just move their dirty production to another country that doesn't have the tax. It means that the EU's climate policy might just push emissions around the globe instead of reducing them overall.