Know your opponent: Which countries might fight the European carbon border adjustment mechanism?

Abstract

The European Union (EU) plans to activate a carbon border adjustment mechanism (CBAM) in January 2023. This is meant to secure fair competition for European energy-intensive industries, incentivize countries both inside and outside the EU to cut emissions, and hinder carbon leakage from the EU. Early reactions from some large economies suggest that CBAM will encounter significant international opposition, especially from countries whose industry is dependent on fossil fuels. The purpose of this paper is to identify which countries are likely to resist CBAM most fiercely. This is done by creating a multidimensional CBAM Opposition Index based on the following indicators: trade with the EU, carbon intensity, litigiousness in the World Trade Organization (WTO), domestic public opinion on climate change, and capacity for innovation. The analysis indicates that the following countries are most likely to mount opposition to CBAM: Iran, Ukraine, the USA, the United Arab Emirates, Egypt, China, India, Kazakhstan, Russia, and Belarus. How the EU handles opposition from these countries will be decisive for the fate of CBAM. The index can serve as a tool for policymakers inside and outside the EU who need to negotiate over CBAM and want to anticipate the stances of other countries and understand their drivers.