EU’s Carbon Border Adjustment Mechanism - A Potential Barrier to International Trade or a Possible Solution to Carbon Leakage?

Abstract

In July 2021, the European Commission presented a legislative package to support the EU’s strengthened climate ambitions. As part of the package, a proposal for a Carbon Border Adjustment Mechanism (CBAM) was published. The CBAM is a climate measure that aims to prevent the risk of carbon leakage by introducing a price for greenhouse gas emissions on certain products imported into the EU. However, despite its climate objectives, the CBAM does raise international trade law-related issues. While the CBAM does support the EU’s increased ambition on climate mitigation, the mechanism’s WTO compatibility has come into question. The EU’s proposed CBAM challenges provisions under the GATT concerning border measures, non-discrimination principles and environmental exceptions. The thesis concludes that whether the CBAM can be considered compatible with WTO rules ultimately depend on how the instrument is designed.