A Critical Analysis of the Carbon Border Adjustment Mechanism

On 10 May 2023, the EU legislature adopted Regulation 2023/956, establishing the carbon border adjustment mechanism (‘CBAM’). The CBAM involves a financial adjustment on imported products based on the greenhouse gas (GHG) emissions that were realized during their production process outside the EU. The authors provide a critical assessment of the CBAM, taking into account the mechanism’s ambitions, WTO law, and the principles of effectiveness and efficiency. The authors conclude that the CBAM imposes a major administrative burden on the economic operators affected by it. In addition, some elements – e.g., the exemption regime, the scope of the anti-circumvention rules and the disregard of non-price-based carbon costs paid abroad – call into question its environmental effectiveness. In the opinion of the authors, the EU legislature should continuously monitor the (economic) impact and functioning of the CBAM and make adjustments to its legal framework whenever imbalances arise. Careful and continuous (re)consideration of all relevant interests and values – e.g., WTO obligations, (geo)politics, alignment of climate action agendas, economic impact and shifting trade patterns, concerns of unilateralism, ecological effectiveness, regulatory and administrative efficiency – would allow the CBAM to evolve into a more balanced instrument with as few disproportional adversities for stakeholders as possible. Only with sufficient regulatory sensitivity will the mechanism command sufficient (geopolitical) support, so that it may effectively contribute to the combating of climate change around the world.