European Union’s Carbon Border Adjustment Mechanism in light of the law of the World Trade Organization

The Carbon Border Adjustment Mechanism established by the European Union in 2023 aims to equalize the burden of climate change mitigation measures taken by importers and domestic producers. Mechanism’s designers are confident that it will succeed without breaking the law of the World Trade Organization. The article shows that the overall design of the Mechanism does indeed fall under the article XX(g) exception of the General Agreement on Tariffs and Trade, allowing for trade measures to conserve an exhaustible natural resource. In this connection, the article argues for viewing carbon budget (or stable climate) as an exhaustible natural resource. Nonetheless, the Mechanism does not conform to the requirements of the chapeau of article XX of the Agreement, prohibiting unjustified discrimination when taking trade measures provisionally recognized under one of the paragraphs of this article. Based on the practice of the Dispute Settlement Body of the World Trade Organization, the article demonstrates that when taking such measures one must take into account comparable measures of the country of origin as well as comparable voluntary measures taken by foreign producers. It further highlights that among all comparable measures the Mechanism only recognizes emission trading systems and carbon taxes, but not other measures like environmental charges, technology standards and purchase of carbon credits. This gives rise to unjustifiable discrimination – contrary to the chapeau of article XX of the Agreement. However, the EU’s choice in favor of this design of the Mechanism was most likely forced given the alternatives available: either inaction with the consequence of undermining international climate cooperation or bearing an impossibly heavy administrative burden. The article concludes with the author reflecting on the possible sequence of recognition by the EU of various comparable measures taken by countries of origin and foreign producers and on events that might encourage it to do so.

About the author: Alexey Nikitin – Counselor, Office of the Adviser to the President and Special Presidential Representative on Climate Issues, Moscow, Russia.

Citation: Nikitin A. (2024) Mekhanizm pogranichnoy uglerodnoy korrektirovki Evropeyskogo Soyuza v svete prava Vsemirnoy torgovoy organizatsii [European Union’s Carbon Border Adjustment Mechanism in light of the law of the World Trade Organization]. Mezhdunarodnoe pravosudie, vol. 14, no. 1, pp. 136–154. (In Russian).

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