1. Introduction

 Global climate change is one of the most severe challenges facing the international community, involving not only the balance of ecosystems but also economic, social, and political impacts. Climate change is accelerating due to excessive greenhouse gas (GHG) emissions, especially carbon emissions from industrialized countries. In response to this global issue, the international community has set long-term goals to reduce carbon emissions and achieve carbon neutrality through multilateral agreements such as the Paris Agreement. The European Union (EU), as a pioneer in global climate action, has implemented a number of innovative policies, including the Emission Trading System (ETS) and the Carbon Border Adjustment Mechanism (CBAM). These policies aim to limit greenhouse gas emissions, promote the development of a green economy, and prevent carbon leakage caused by industrial shifts. 

In this context, understanding the design, implementation, and relationship between ETS and CBAM is crucial for the formulation and implementation of global carbon emission governance strategies. Through these mechanisms, the EU has not only raised its own environmental standards but also had a profound impact on global climate policy, promoting the international community's understanding of carbon emission transparency and carbon pricing mechanisms. 

2. European Union's Emissions Trading System (ETS) 

2.1 Overview of ETS The European Union's Emission Trading System (ETS) is the world's largest and most mature carbon market, officially launched in 2005. Its core concept is the "Cap and Trade" model, which sets a cap on the total carbon emissions of specific industries across the EU and allows market participants to buy and sell carbon emission rights within this framework. This system aims to incentivize companies to adopt the most cost-effective ways to reduce carbon emissions through market mechanisms. ETS covers about 40% of carbon emissions within the EU, including energy production, heavy industry and part of the air transport sector. With the advancement of the European Green Deal, ETS is playing an increasingly important role in the EU's carbon emission reduction strategy. The system is designed to create a carbon emission reduction mechanism that is both fair and efficient, promoting technological innovation and a gradual transition to a low-carbon economy. 

2.2 Operation and Effectiveness of ETS 

The operation of ETS is based on several key elements: the setting of carbon emission caps, the allocation and trading of emission rights, and strict regulatory and penalty mechanisms. Every year, the EU gradually lowers the carbon emission cap according to emission reduction targets and provides emission rights through auctions or free distribution. If the emission exceeds the scope of the emission rights it owns, it needs to purchase additional emission rights in the market; Conversely, if a company can reduce carbon emissions, it can sell excess emissions for a profit. This mechanism effectively internalizes environmental costs, making carbon emission costs a part of corporate business decisions. 

ETS has long proven that it can promote industrial restructuring and the application of clean technologies without sacrificing economic growth. However, ETS also faces challenges such as carbon price fluctuations, policy uncertainty, and international competitive pressures. To address these challenges, the EU continues to adjust its policies, such as implementing the Market Stability Reserve (MSR) mechanism, to regulate the supply and demand relationship of carbon emission rights in the market, ensuring that carbon prices can effectively reflect market conditions and promote carbon emission reduction. 

3. Carbon Border Adjustment Mechanism (CBAM)

 3.1 Overview of CBAM

 The Carbon Border Adjustment Mechanism (CBAM) is an innovative policy proposed by the European Union to address carbon leakage in global carbon emission governance. Carbon leakage refers to when a country implements strict carbon emission limits, which can lead to the transfer of production activities to countries with looser carbon emission limits, thereby bypassing carbon emission reduction policies. CBAM is designed to ensure that imported products enter the EU market at a carbon cost comparable to those produced within the EU, thereby maintaining trade fairness and promoting global carbon reduction. CBAM will gradually implement and adjust the quota for exemption in 2023 and reduce the exemption year by year in the future, which will cover industries such as steel, cement, aluminum, fertilizer and electricity. These industries were chosen because they are a major source of carbon emissions and have a high risk of carbon leakage. Non-EU exporters must purchase carbon certificates equal to the carbon emissions of their products when selling their products to the EU to offset the carbon emissions of their products during production. 

3.2 Operation and Objectives of CBAM 

The operating mechanism of CBAM is very sophisticated, setting the carbon cost of imported products based on the carbon price of ETS. This means that importers need to pay a corresponding carbon cost based on the product's carbon footprint, which will be equivalent to the carbon emission cost of the same product in the ETS. This aims to level the playing field and prompt non-EU companies to take steps to reduce their carbon emissions as well. The EU plans to support its green transition and climate policies through the fees charged by CBAM, which also means that CBAM is not only an economic mechanism, but also a fiscal tool. In addition, CBAM will strengthen the ETS as it reduces incentives for companies to move production to countries with less carbon emission limits. 

3.3 International Impact and Challenges of CBAM 

Although the implementation of CBAM has its legitimacy, it also faces challenges in international trade regulations and diplomatic relations. Some trading partners may view CBAM as a barrier to trade, believing that this mechanism infringes on their freedom of export. Therefore, the EU must carefully consider its compatibility with World Trade Organization (WTO) rules when promoting CBAM. To ease these potential tensions, the EU has begun dialogue with key trading partners to explain the environmental purpose and operational mechanisms of CBAM. This diplomatic effort is necessary because only through international cooperation and dialogue can the global acceptance and effective implementation of CBAM be ensured. 

4. Interaction between ETS and CBAM 

4.1 Directly related 

The two mechanisms of ETS and CBAM are complementary in design. They are all based on the principle of carbon pricing, with the core goal of reducing carbon emissions through market mechanisms and promoting the development and application of low-carbon technologies. As a mature system, ETS directly sets carbon emission caps and trading markets within the EU, while CBAM aims to strengthen the external effects of ETS by imposing corresponding carbon costs on non-EU imports to prevent industrial migration and carbon leakage caused by carbon cost differences. Further, CBAM can be seen as a natural extension of ETS. As the ETS gradually lowers the carbon emission cap, companies in the EU face increasingly high carbon costs. Without a mechanism like CBAM, low-cost products from countries with less carbon emission restrictions may dominate the market, weakening the environmental impact of ETS. Therefore, CBAM is designed to ensure that products within and outside the EU are on an equal playing field on carbon costs. 

4.2 Long-term impact 

In the long run, the interaction between ETS and CBAM will have a profound impact on global carbon markets and international trade patterns. First, the implementation of CBAM will push non-EU countries to accelerate their carbon emission reduction measures. Since CBAM requires products imported into the EU to pay corresponding carbon costs, this sets a clear economic incentive for other countries to improve their own carbon emission standards to maintain the competitiveness of their products in the EU market. Secondly, the combination of ETS and CBAM will promote the standardization and harmonization of carbon pricing mechanisms on a global scale. As these mechanisms are implemented and their effects gradually become apparent, more countries may consider introducing similar carbon pricing policies, thereby forming a more consistent and coherent global carbon market. This will not only help reduce carbon emissions on a global scale, but may also strengthen international cooperation and promote the further improvement of the global climate governance framework. 

Finally, this policy combination may also spark international discussions on carbon emission trade barriers. While CBAM aims to level the playing field, its additional burden on foreign products may also be seen as a new form of trade protection. This requires the EU to pay close attention to international trade regulations and diplomatic relations while promoting its climate policy, ensuring that the implementation of CBAM not only complies with international law but also promotes the achievement of global climate goals. 

5. Conclusion 

5.1 Global Significance of Carbon Emission Governance 

In efforts to combat global climate change, carbon emission governance mechanisms such as the EU's Emissions Trading System (ETS) and Carbon Border Adjustment Mechanism (CBAM) play a key role. These mechanisms not only effectively manage carbon emissions within the EU but also have a profound impact on the global carbon emission governance framework. ETS effectively internalizes environmental costs by setting emission caps and allowing emissions trading, incentivizing companies to seek low-carbon solutions. CBAM further expands the scope of ETS, protecting the fairness of competition in the EU market by imposing carbon costs on non-EU imports, while promoting products worldwide to reduce their carbon footprint. 

5.2 The need to promote international cooperation 

The solution of global climate problems requires the joint efforts of the international community. The implementation experience of ETS and CBAM shows that the combination of regulations and market mechanisms can effectively drive carbon emission reduction. However, it also shows the need for further international cooperation to ensure the consistency and efficiency of carbon emission governance mechanisms on a global scale. In advancing its climate policy, the EU is already engaged in dialogue with international trading partners, aiming to alleviate possible trade tensions and enhance global acceptance of the policy. 

5.3 Future 

Looking ahead, as global climate policies continue to develop and the international situation changes, mechanisms such as ETS and CBAM may continue to evolve to address new challenges. This includes technological innovation, policy adjustments, and support strategies for emerging markets and developing countries. The success of global climate governance will depend on policy coordination by governments, the innovation capabilities of enterprises, and the active participation of civil society. Additionally, as the impact of climate change intensifies, the stringency and coverage of carbon emission policies are likely to expand further to include more industries and broader geographical reach. Carbon pricing mechanisms may become the choice of more countries to meet their commitments under Nationally Determined Contributions (NDCs). This will require more technical exchanges, policy learning, and experience sharing on a global scale to promote the achievement of carbon reduction goals on a global scale.