Designing Border Carbon Adjustments for Enhanced Climate Action

BCA proposals have been floated not only as a measure to combat leakage but also as a means to secure greater cooperation: to avoid tariffs, other nations could adopt equivalent emissions pricing.

“BCA proposals have been floated not only as a measure to combat leakage but also as a means to secure greater cooperation: to avoid tariffs, other nations could adopt equivalent emissions pricing 73,74 .”

Key constraints for climate policies targeting heavily traded products arise from potential international repercussions, especially from incompatibilities with international trade law.

“Key constraints for climate policies targeting heavily traded products arise from potential international repercussions, especially from incompatibilities with international trade law.”

Analyses of the WTO compatibility of BCAs suggest that a BCA can in principle be designed and implemented in accordance with international trade law, but the details would matter and differ from the elegant theoretical solution with full symmetry.

“Analyses of the WTO compatibility of BCAs (80, 94-99) suggest that it can in principle be designed and implemented in accordance with international trade law, but the details would matter and differ from the elegant theoretical solution with full symmetry.”

BCAs could take the form of a tax, a tariff, or an obligation to procure emissions permits.

“BCAs could take on the form of a tax, a tariff, or an obligation to procure emissions permits (80).”

A meta-analysis finds that without export rebates, even at a carbon price of €30/t, approximately 10% of EU exports would face significant cost increases and leakage risk.

“A meta-analysis (101) finds that without such export rebates, even at a carbon price of € 30/t, approximately 10% of EU exports would face significant cost increases and leakage risk (80, 91).”

Exempting exporters from carbon pricing through rebates could constitute a prohibited subsidy under the WTO Agreement on Subsidies and Countervailing Measures and undermine the environmental defense of a measure.

“Exempting exporters from carbon pricing through rebates could constitute a prohibited subsidy under the WTO Agreement on Subsidies and Countervailing Measures (ASCM), and undermine the environmental defense of a measure (80).”

Choices on benchmarked versus actual embodied emissions to calculate the adjustment matter and bring complex implications and diverse views about the impact on compatibility with WTO principles.

“Choices on benchmarked versus actual embodied emissions to calculate the adjustment matter (see Section 4.3) and bring complex implications and diverse views about the impact on compatibility with WTO principles (80).”

The Waxman-Markey bill left the question of which countries have assumed their fair share up to US decision-makers, which is highly problematic in relation to basic WTO principles and UNFCCC principles on common but differentiated responsibilities and respective capabilities.

“In other words, it left the question of which countries have assumed their fair share up to US decision-makers, which is highly problematic in relation to basic WTO principles (80), as well as in light of the UNFCCC principles on common but differentiated responsibilities and respective capabilities (80).”