EU's Carbon Border Adjustment Mechanism – Will It Achieve Its Objective(s)?

Forthcoming in Journal of World Trade 56:3 (2022)

19 Pages Posted: 11 Oct 2021

Date Written: September 30, 2021

Abstract

The European Commission’s proposed carbon border adjustment mechanism (CBAM) aims to prevent the risk of carbon leakage, but it would levy imports even when there is no risk of carbon leakage, which may in turn increase GHG emissions. The proposed CBAM also appears to cite the intermediate objective of ensuring a ‘level playing field’ for carbon pricing, but it is difficult to see the rationale for retroactively equalizing only the carbon price while ignoring the costs paid by producers to support other policies aimed at curbing nationwide GHG emissions and the costs of reducing the emissions from their own products. These issues essentially stem from the CBAM’s inherent and fundamental constraints in the institutional design that charges for emissions from the production process outside the EU’s jurisdiction and cannot be remedied by superficially tweaking the associated mechanism. The CBAM could be justified under Article XX(g) as a measure ‘relating to the conservation of’ an atmosphere with low GHG density without scrutinizing these issues. However, it is questionable to interpret Article XX(g) as authorizing inefficient resource conservation through unilateral measures, despite the exporting country potentially being able to conserve resources more efficiently.

Keywords: carbon border adjustment mechanism (CBAM), carbon leakage, level playing field, European Union, GATT, border tax adjustment

JEL Classification: K33

Suggested Citation

(Yoshida) Sato, Sakuya, EU's Carbon Border Adjustment Mechanism – Will It Achieve Its Objective(s)? (September 30, 2021). Forthcoming in Journal of World Trade 56:3 (2022), Available at SSRN: https://ssrn.com/abstract=3936881 or http://dx.doi.org/10.2139/ssrn.3936881

Sakuya (Yoshida) Sato (Contact Author)

Nishimura & Asahi

1-1-2 Otemachi, Chiyoda-ku
Otemon Tower
Tokyo, 100-8124
Japan

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