Which of the following statements about CBAM (Carbon Border Adjustment Mechanisms) is/are correct?

1. These are an emerging set of trade policy tools to allow movement of carbon-intensive economic activity from a jurisdiction having less stringent climate policy to a jurisdiction having stringent climate policy

2. These are meant to increase the environmental effectiveness of climate policies

Select the answer using the code given below:

The Correct answer is Option 2. 

Key Points

​Carbon Border Adjustment Mechanisms (CBAM):

• Carbon Border Adjustment Mechanisms (CBAM) are not intended to allow the movement of carbon-intensive economic activity from a jurisdiction with less stringent climate policy to one with more stringent policy. Instead, they are designed to prevent "carbon leakage," which occurs when companies transfer production to countries with laxer emission constraints. CBAMs impose a carbon price on imports of certain goods to equalize the carbon cost between domestic products and imports. Hence statement 1 is incorrect
• Statement 2: This statement is correct. CBAMs are meant to increase the environmental effectiveness of climate policies by ensuring that imported goods are subject to the same carbon pricing as domestically produced goods, thus discouraging companies from relocating production to avoid carbon taxes and maintaining the integrity of climate action. Hence statement 2 is correct