The Pending EU CBAM: Quo Vadis Switzerland?

Abstract

The intention of the EU to introduce a carbon border adjustment mechanism (CBAM) raises concerns among its trading partners fearing the loss of competitiveness in the EU market, should the measure apply to their exports. Switzerland, a major EU trading partner, has an advantage compared to many others: It has its own emissions trading scheme (ETS) in place, which due to the linking arrangements with the EU ETS results in the same carbon price for Swiss producers as for their EU counterparts. There seems therefore no need to adjust emissions costs at the border between the EU and Switzerland, and good chances for an exemption of Swiss exports from the pending EU CBAM. However, the exemption is unlikely to come without a condition: Switzerland would have to introduce its own CBAM to avoid the transshipment of other countries’ carbon-intensive products through the Swiss territory to the EU. The article discusses the main conditions and constraints for the design of an effective Swiss CBAM that would need to balance 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 depending on the reaction the EU measure will provoke among stakeholders. Statements and recommendations on a CBAM design made in the article hold true, for the most part, also for other third countries. Carbon Border Adjustment, Emissions Trading, WTO Law, EU, Switzerland