Designing an Equitable Border Carbon Adjustment Mechanism

Abstract

Policy makers worldwide have increasingly considered the adoption of a carbon adjustment at the border to equalize carbon pricing on foreign goods with carbon policies imposed on domestic production. The implementation of a border carbon adjustment (BCA) in the European Union has been recently proposed by the European Commission, followed by similar plans in the United States and Canada, as an instrument designed to address concerns about competitiveness and emissions leakage resulting from the absence of a global price on carbon or an internationally coordinated carbon-pricing system. Despite its potential to address these issues, the implementation of a BCA raises concerns with respect to its impact on developing countries. A BCA will likely impose a disproportionate burden on developing countries with limited capacity to cut back emissions and thus violate the principle of common but differentiated responsibilities (CBDR) established in the United Nations Framework Convention on Climate Change. The main goal of this article is to examine CBDR's normative requirements and determine its legal implications for BCA design. The article further offers policy guidelines for implementing a CBDR-compliant BCA that addresses its ultimate purpose of reducing global greenhouse gas emissions while also supporting the development needs of less affluent countries.

Keywords: Carbon pricing, developing countries, international trade, trade policy, GATT, WTO