With the Paris Agreement, the international community has formally endorsed a transition toward a more fragmented, domestically driven architecture for international climate cooperation. Such an approach may be undermined by carbon leakage – the displacement of emissions from states with more to less stringent climate policy constraints. Border carbon adjustments (BCAs) offer a promising response to leakage, but they also raise concerns about compatibility with international trade law.
The current legal and policy landscape creates a window of opportunity for renewed efforts to adopt BCAs. Trade relations are fraying due to escalating tariff conflicts and gridlock in the World Trade Organization (WTO) – potentially lowering earlier sensitivity against trade-related environmental measures. With a long-term agreement in place, previous concerns that BCAs might disrupt delicate climate negotiations may have eased. In addition, the availability and quality of emissions data methodologies has improved. At the same time, however, the rapidly evolving policy context yet to address related legal concerns, such as fears of trade retaliation and challenges before the WTO, and questions about BCAs’ compatibility with international climate change treaties.
This article fills this gap. The authors tracing BCA-relevant developments in climate and trade policy, explore the conceptual underpinnings and economic rationales for BCAs, and review past proposals. The authors present an analysis of legal considerations affecting BCAs under international trade and climate law.
The authors draw on insights from the analysis to formulate guidelines for the design and implementation of BCAs. They describe substantive elements and procedural steps that states can use to help harness the climate benefits of BCAs, while limiting technical complexities and legal risks.
At the same time, the authors acknowledge that some legal uncertainties remain. Given their complexity and tradeoffs, BCAs are neither a desirable nor stable option for global climate action in the long run, the authors note. Nevertheless, the authors conclude that if BCAs are able to remove even one of the many barriers to more ambitious climate action and thereby accelerate global climate action, the residual risks and trade-offs associated with their use may be a price worth paying.