Is the EUs Carbon Border Adjustment Mechanism Proposal in Accordance with WTO Regulations?

Abstract

The European Unions proposed Carbon Border Adjustment Mechanism (CBAM) is a cornerstone initiative of the European Green Deal, designed to address both environmental and economic challenges. At its core, the CBAM seeks to tackle carbon leakage, which occurs when businesses transfer production to countries with laxer carbon regulations. This not only undermines domestic climate policies but also threatens fair competition in global markets. This paper breaks down the dual purposes of CBAM: levelling the economic playing field by adjusting the price of imports based on their carbon content and encouraging nations to adopt stronger climate policies. It critically examines CBAMs alignment with World Trade Organisation (WTO) standards to avoid potential trade conflicts, emphasising the balance between environmental aims and trade norms. Moreover, the paper assesses CBAMs compatibility with global climate goals. Conclusively, while highlighting the mechanisms legislative intricacies, the study proposes refinements ensuring its effectiveness and compliance with international trade rules. This analysis offers policymakers a clear framework for advancing environmentally conscious strategies without violating trade agreements.