The Pending EU CBAM: Quo Vadis Switzerland?

Abstract

The intention of the EU to introduce a carbon border adjustment mechanism (CBAM) has raised concerns among EU trading partners fearing the loss of competitiveness in the EU market, should the EU measure be applied to their exports. Switzerland as a major EU trading partner has an advantage compared to many others. It has its own emissions trading scheme (ETS) in place, which through linking arrangements with the EU ETS results in the same carbon price for Swiss producers as for their EU counterparts. There seems therefore no point in adjusting emissions costs at the border between Switzerland and the EU. This creates good chances for an exemption of Swiss exports from the pending EU CBAM. However, the exemption will unlikely come without a crucial condition: Switzerland would have to introduce its own CBAM to avoid the transshipment of other countries’ carbon- intensive products through its territory to the EU. This article discusses the main conditions and constraints for the design of an effective Swiss CBAM balancing between achieving environmental and economic objectives, while also remaining acceptable from a practical, legal, and political perspective. In designing its CBAM, Switzerland could follow the EU model and adjust it accordingly based on the reaction the EU measure will provoke among stakeholders.