Brief analysis 20: Aspects of the commercial law design of carbon border adjustment in the EU

In a recent brief analysis, EcoAustria looked at the commercial law design of the introduction of the_{carbon border adjustment}mechanism (CBAM) in the EU. This is intended to prevent the migration of companies from_{CO2-intensive} industries and thus avoid the mere relocation of the resulting emissions to other parts of the world. It is also intended to compensate for the competitive disadvantage that companies face in production within the EU due to the pricing of_CO2 by the EU ETS (EU Emissions Trading System) and thus create location neutrality compared to third countries in terms of_{CO2 pricing}.

However, pure import pricing, as envisaged in the CBAM proposal, cannot achieve location neutrality. For this reason, the Institute already spoke out in favor of completing the_{carbon border adjustment mechanism} by means of export exemptions in a previous policy note. In order to ensure a smooth implementation of the CBAM, care must be taken, particularly in connection with export exemptions, to ensure that the design cannot be challenged under trade law.

Aspects of the commercial law design of the CBAM
EU trading partners can put forward several legal arguments to take action against_{carbon border adjustment}. It is not possible to say whether the CBAM can be designed in a way that complies with trade law. At best, the EU could justify a violation as a permitted exception under Article XX of the General Agreement on Tariffs and Trade. There is still no WTO precedent on measures taken for climate protection. As compensation for the introduction of CBAM, the EU could specifically support poorer countries with climate protection measures, higher environmental standards or more ecological production methods.

Policy proposals
The draft legislation on the border adjustment mechanism is currently in the trilogue process between the European Commission, the European Parliament and the European Council. During the introduction or transition phase of the CBAM, full WTO conformity will not be achieved. Instead, the EU should engage in ongoing negotiations with its trading partners in order to make adjustments in the event of possible discrimination and prevent retaliatory trade policy measures. Furthermore, according to EcoAustria, more incentives are needed for companies to quantify the_{CO2 emissions} of their goods themselves. This should lead to a stronger focus on reducing their own_{CO2 emissions}. As this can be associated with high costs, particularly for developing countries and least-developed countries (LDCs), EcoAustria is also proposing differentiated support measures from the EU. One example of such a measure is technical support for countries. This could be used to expand the infrastructure for measuring emissions, to adopt environmental standards or to implement low-emission technologies in the long term.