The European Commission has proposed a carbon border adjustment mechanism (CBAM) as part of its European Green Deal. The CBAM would require importers to purchase carbon emissions certificates for imports that the European Union (EU) determines are not produced under emissions standards similar to those of the EU. The aim is to apply a carbon price to imported products that is equivalent to the carbon price applied to products manufactured in the EU. Although the CBAM may not be implemented for several years, merely proposing it has opened an entirely new front for trade confrontations. The prospect of the CBAM raises numerous issues about its consistency with the rules of world trade.
The immediate questions are: How will other members of the World Trade Organization (WTO) react? Will this proposed action by the European Union set off a chain reaction of similar climate‐related trade restrictions elsewhere? Or will it provoke a wide outcry of global criticism of green protectionism, leading to a legal showdown in the WTO? The question over the longer term is: How will these proposed restrictions shape the future of both trade and climate policies and governance globally? Without revision and careful application, the EU’s proposed CBAM may be inconsistent with fundamental WTO rules.briefing-paper-125
James Bacchus is a member of the Herbert A. Stiefel Center for Trade Policy Studies, the Distinguished University Professor of Global Affairs and director of the Center for Global Economic and Environmental Opportunity at the University of Central Florida.
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