Abstract

Abstract Border measures to support unilateral climate policy efforts are being discussed in particular in the EU and the US. The EU has stipulated in its 2008 Directive on the European Emissions Trading Scheme (EU ETS) that in order to address the potential for carbon leakage, an inclusion of importers in the ETS could be a policy option amongst others. A climate policy adjustment at the border could take various forms and it could be motivated in three ways. First, trade measures could be announced as a “stick”, sanctioning those countries who are not willing to cooperate on climate protection. Second, the border adjustment for importers (making them pay at the border according to the carbon they emitted for producing the traded good) or a rebate for exporters for the CO2-price they paid at home, would take away the competitive disadvantage vis-à-vis producers from third countries. Third, and as the flip side of the competitiveness effects, the border adjustment could be motivated from a climate policy point of view: in order to secure the environmental integrity of a domestic carbon pricing scheme, such measures could prevent leakage of emissions (caused by relocation of production, in parts or as a whole). While a strong economic case could be made for preventing leakage and also competitiveness effects from CO2 pricing through a cost adjustment at the border for a few sectors, there is little evidence that trade measures as such help to create international leverage for climate policy cooperation. From a legal point of view the justification of such measures very much depends on their designs and motivations. From a political point of view, the risk of disruptions amongst trade partners is fairly high and this is a major argument for limiting the use of border adjustments altogether.

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