10 - Carbon Border Adjustment Mechanism

Summary

Chapter 10 focuses on the EU’s Carbon Border Adjustment Mechanism (CBAM), introducing carbon pricing on imported products from certain sectors, in an attempt to address carbon leakage and, intentionally or not, ensuring a level playing field between domestic and imported products. The chapter presents the mechanism, its aims, and its consistency with EU’s international environmental and trade commitments. Accordingly, the chapter analyses the question of CBAM’s compatibility with the international principle of common but differentiated responsibility (CBDR) as it treats developing and least developed countries on an equal footing with the developed ones. Then it considers the question of the mechanism’s compliance with WTO rules, in particular WTO non-discrimination rules and prohibition on quantitative restrictions. It pays special attention to potential justifications of possible breaches and whether they could accommodate also a CBAM in line with the CBDR principle, thereby addressing the convoluted question of the relationship between international trade and climate regimes.