EU Carbon Border Adjustment Mechanism Faces Many Challenges

22 Pages Posted: 1 Nov 2022 Last revised: 3 Nov 2022

See all articles by Gary Clyde Hufbauer

Gary Clyde Hufbauer

Peterson Institute for International Economics; Institute for International Economics

Jeffrey J. Schott

Peterson Institute for International Economics

Megan Hogan

Peterson Institute for International Economics

Jisun Kim

Peterson Institute for International Economics

Date Written: October 31, 2022

Abstract

This Policy Brief assesses the evolving EU Emissions Trading System and EU carbon border adjustment mechanism (CBAM) and explains objections within Europe and from major trading countries likely to be affected by the proposed CBAM import levies. While EU officials have sought to ensure that the CBAM is consistent with obligations under the World Trade Organization (WTO), key aspects of the CBAM could violate WTO rules and are likely to be contested, taking years to play out. Meanwhile, several other countries will adopt new carbon-inspired border restrictions, adding to global trade frictions. Major carbon-emitting countries, therefore, need to act cooperatively instead of unilaterally to both advance the fight against climate change and update the rules-based global trading system. Two-thirds of greenhouse gas emissions result from nontraded activities, such as road transport, electricity generation, and home and office heating. Countries can curb emissions in these activities, while developing guidelines for carbon abatement in traded sectors.

Keywords: Energy, Environment, Trade Policy, European Union

Suggested Citation

Hufbauer, Gary Clyde and Schott, Jeffrey J. and Hogan, Megan and Kim, Jisun, EU Carbon Border Adjustment Mechanism Faces Many Challenges (October 31, 2022). Peterson Institute for International Economics Policy Brief 22-14, Available at SSRN: https://ssrn.com/abstract=4262951

Gary Clyde Hufbauer (Contact Author)

Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036-1903
United States

Jeffrey J. Schott

Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

Megan Hogan

Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

Jisun Kim

Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

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