A Legal Exploration of the European Union’s Carbon Border Adjustment Mechanism

Abstract

In December 2019, the European Commission released a mechanism to fight climate change, namely the European Green Deal. This policy was put in place to materialize the goals of the Paris Agreement on Climate Change of 2015, that is, to combat the issue of climate change along the lines of sustainable development and fight poverty. In the context of the European Green Deal, one of the key instruments envisaged to achieve the ambitious plans of the European Union (EU) is the so-called Carbon Border Adjustment Mechanism (CBAM), which is the focus of this article and has been described as an ‘extraterritorial outreach’ for attempting to regulate matters outside the EU borders. This article seeks to answer is whether the CBAM is justified in line with the need to protect the environment and address climate change as well as increasing global economic welfare and reducing poverty. This article provides an overview of CBAM, analyses the rationale behind CBAM as well as the various misgivings from third parties. It contextualizes CBAM in the context of free trade and examines whether CBAM is consistent with multilateral trade rules. It then provides the design of a CBAM based on the principles of international trade and sustainable development. The article concludes that, overall, the analysis of CBAMs, particularly regarding the fervency of the EU to make its CBAM compatible with both trade rules and climate change objectives, demonstrates states’ growing interest in protecting the planet, while preserving economic values; it also indicates the importance of trade in managing those interests. Carbon border adjustment mechanism, WTO, European Green Deal, international trade, GATT, sustainable development, Fit for 55

Allocation, allocation, allocation! The political economy of the development of the European Union Emissions Trading System

“…The fact that rebates for EU exporters would be contrary to WTO principles, or that charging CBAM on imports from least developed countries conflicts with international climate change law (Pirlot, 2021), for instance, means that there are still downsides even with a CBAM charging importers. The Commission proposal to gradually phase in a CBAM before completely phasing out free allocations may raise protectionist concerns that could trigger retaliation by the EU's trading partners (Leal‐Arcas et al, 2022).…”