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The European Carbon Border Adjustment Mechanism and the path to Sustainable Trade Policies: From ‘Coexistence’ to ‘Cooperation’

Published online by Cambridge University Press:  09 December 2022

Abstract

Long examined by the academic literature as a challenging technical-legal fiction with a strong geopolitical impact, border carbon adjustment is on its way to becoming a European reality. This Article provides an overview of the European legislative process with a comparison of the initial Carbon Border Adjustment Mechanism (‘CBAM’) project presented by the Commission in July 2021 with the positions formalised by the European Parliament and the Council in 2022. With a detour through the doctrine of international law and building upon the work of Professor Thomas Cottier on the concept of Common Concern of Humankind (‘CCH’) in international law, the Article examines the European CBAM, and more broadly, the recent multiplication of unilateral environmental initiatives with extraterritorial impacts, as a contextual transition from a logic of coexistence to a logic of cooperation in the field of environmental policies. It concludes on the necessity to design the European CBAM accordingly, by redistributing its direct revenues and developing open and inclusive cooperation frameworks, to accelerate this transition in the field of industrial decarbonisation.

Type
Research Article
Copyright
Copyright © The Author(s), 2022. Published by Cambridge University Press on behalf of Centre for European Legal Studies, Faculty of Law, University of Cambridge

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Footnotes

*

Pierre Leturcq is the Director of Studies and Development of the think tank « Europe Jacques Delors ». Pierre teaches at Sciences Po Paris and is a Scientific Associate at the Université Libre de Bruxelles (ULB - CEVIPOL). Before joining EJD, Pierre worked with the Institute for European Environmental Policy (IEEP) as a Senior Policy Analyst in the Global Challenges and SDGs programme. Between 2021 and 2022, Pierre was the coordinator of the Green Trade Network, a group of over 50 policy experts conducting evidence-based research and outreach activities on the trade and environment nexus. Pierre's area of expertise focuses on trade and environmental sustainability. With Pascal Lamy and Geneviève Pons, he is the co-author of a series of policy papers on how to “green” the EU's trade policy. Pierre holds a Master's degree in Private Law from the Jean-Moulin University of Lyon, a Master's degree in Public Law obtained at the Humboldt University in Berlin (Erasmus) and a Master's degree in Legal History from the Jean-Moulin University of Lyon.

References

1 J Titievskaia and H Morgado Simões with A Dobreva Members’ Research Service, ‘EU Carbon Border Adjustment Mechanism: Implications for Climate and Competitiveness, Briefing’ (2022) European Parliamentary Research Service (EPRS), PE 698.889, p 10.

2 Article 17(7) and (8) of the Treaty on European Union (TEU):

‘7. Taking into account the elections to the European Parliament and after having held the appropriate consultations, the European Council, acting by a qualified majority, shall propose to the European Parliament a candidate for President of the Commission. This candidate shall be elected by the European Parliament by a majority of its component members. If he does not obtain the required majority, the European Council, acting by a qualified majority, shall within one month propose a new candidate who shall be elected by the European Parliament following the same procedure.

8. The Commission, as a body, shall be responsible to the European Parliament. In accordance with Article 234 of the Treaty on the Functioning of the European Union, the European Parliament may vote on a motion of censure of the Commission. If such a motion is carried, the members of the Commission shall resign as a body and the High Representative of the Union for Foreign Affairs and Security Policy shall resign from the duties that he carries out in the Commission’.

3 COM(2019) 640 final, Communication from the Commission to the European Parliament, the European Council, the Council, the European Economic and Social Committee, and the Committee of the Regions, ‘The European Green Deal’.

4 European Commission – Directorate General for Trade Press Release, ‘EU-New Zealand Trade Agreement: Unlocking Sustainable Economic Growth’ (30 June 2022), https://ec.europa.eu/commission/presscorner/detail/en/ip_22_4158.

5 European Commission, ‘Trade Policy Review: An Open, Sustainable and Assertive Trade Policy’ (18 February 2021), https://trade.ec.europa.eu/doclib/docs/2021/april/tradoc_159541.0270_EN_05.pdf.

6 COM(2022) 409 final, Communication from the European Commission to the European Parliament, the European Economic and Social Committee and the Committee of the Regions, ‘The Power of Trade Partnerships: Together for Green and Just Economic Growth’, Action Points 19–20:

‘The Commission will:

Further strengthen the enforcement of TSD commitments in future agreements by proposing to EU trading partners to:

  1. a.

    a. Extend the general state-to-state dispute settlement compliance stage to the TSD chapter.

  2. b.

    b. Involve the DAGs in monitoring the compliance stage.

  3. c.

    c. Extend the possibility to apply trade sanctions in cases of failure to comply with obligations that materially defeats the object and purpose of the Paris Agreement on Climate Change or in serious instances of non-compliance with the ILO fundamental principles and rights at work.

The application of trade sanctions will follow the general state-to-state dispute settlement rules.

Prioritise the enforcement of TSD cases based on the importance of the nature of the commitments at issue, the seriousness of their violation and the impact on the environment or workers’.

7 See E Blot, A Oger, and J Harrison, ‘Enhancing Sustainability in EU Free Trade Agreements: The Case for a Holistic Approach’ (Institute for European Environmental Policy, Policy Paper, 22 April 2022); E Blot, ‘IEEP's Assessment of the New EU Trade and Sustainable Development Action Plan’ (News, Institute for European Environmental Policy, 23 June 2022); E Blot and M Kettunen, ‘Environmental Credentials of EU Trade Policy’ (Institute for European Environmental Policy, Policy Paper, 14 April 2022)

8 Proposition de résolution européenne No 98 (2009–2010) portant sur le marché des quotas de CO2 et le mécanisme d'inclusion carbone aux frontières (MIC).

9 Draft Commission Proposal for a Directive of the European Parliament and of the Council amending Directive 2003/87/EC (10 December 2007).

10 The most important are listed in Lamy, P, Pons, G and Leturcq, P, ‘GT3 - A European Border Carbon Adjustment Proposal’ (Europe Jacques Delors, 2020), p 5Google Scholar.

11 Office of Senator Chris Coons Press Release, ‘Sen. Coons, Rep. Peters Introduce Legislation to Support U.S. Workers and International Climate Cooperation’ (19 July 2021), https://www.coons.senate.gov/news/press-releases/sen-coons-rep-peters-introduce-legislation-to-support-us-workers-and-international-climate-cooperation.

12 ‘Should differences in levels of ambition worldwide persist, as the EU increases its climate ambition, the Commission will propose a carbon border adjustment mechanism, for selected sectors, to reduce the risk of carbon leakage. This would ensure that the price of imports reflect more accurately their carbon content. This measure will be designed to comply with World Trade Organization rules and other international obligations of the EU. It would be an alternative to the measures that address the risk of carbon leakage in the EU's Emissions Trading System’. COM(2019) 640 final, note 3 above, p 5.

13 ‘Additional Profits of Sectors and Firms from the EU ETS (2008–2019)’ (Carbon Market Watch, May 2021), https://carbonmarketwatch.org/wp-content/uploads/2021/06/CE_Delft_Additional_Profits_ETS.pdf.

14 ‘The CBAM factor shall be equal to 100% for the period between the entry into force of [CBAM regulation] and the end of 2025, and shall be reduced by […] 5 percentage points each year from 2026 to 2028, by 7.5 percentage points each year from 2029 to 2030, by 10 percentage points each year from 2031 to 2032, […] by 15 percentage points each year from 2033 to 2034 and by 20 percentage points in 2035 to reach 0% by the tenth year’. Council's General Approach on ETS, p 56.

15 COM(2021)0564 – C9-0328/2021 – 2021/0214(COD), Carbon Border Adjustment Mechanism/Amendments Adopted by the European Parliament on 22 June 2022 on the Proposal for a Regulation of the European Parliament and of the Council Establishing a Carbon Border Adjustment Mechanism (ordinary legislative procedure: first reading), https://www.europarl.europa.eu/doceo/document/TA-9-2022-0248_EN.pdf.

16 I presented a first version of this sub-section in the discussion paper prepared for the round table on CBAM during the Think 2030 conference held at Sciences Po Paris on 30 June 2022. See Green Trade Network, ‘State of the EU CBAM after the French Presidency of the Council (January–July 2022): A Reality Check’ (Think 2030 Discussion Paper, Institute for European Environmental Policy/IDDRI, forthcoming).

17 Z Weise, ‘Key Climate Proposals Fail to Pass European Parliament - MEPs Refused to Adopt Positions on Key Files Following Conservative-Led Efforts to Water Them Down’ (Politico, 8 June 2022), https://www.politico.eu/article/key-climate-proposals-fail-to-pass-european-parliament.

18 EPP's rapporteur on the revision of the European Emissions Trading Scheme (ETS), Peter Liese, proposed an amendment stating that ‘the CBAM factor shall be reduced during a transitional period by 10% from 2028 until 2030 before being reduced by 17,5 percentage points each year to reach 0% by the end of 2034’. Source: https://www.peter-liese.de/images/ETS.pdf.

19 Cosbey, A, Droege, S, Fischer, C, Reinaud, J, Stephenson, J, Weischer, L, and Wooders, P. ‘A Guide for the Concerned: Guidance on the Elaboration and Implementation of Border Carbon Adjustment’ (2012) Stockholm: ENTWINED, https://www.iisd.org/system/files/publications/bca_guidance.pdfGoogle Scholar.

20 M Condon and Ignaciuk, ‘Border Carbon Adjustment and International Trade: A Literature Review’ (OECD - Working Paper, 2013).

21 Cosbey, A, Droege, S, and Fischer, K, ‘Developing Guidance for Implementing Border Carbon Adjustments: Lessons, Cautions, and Research Needs from the Literature’ (2019) 13 Review of Environmental Economics and Policy 3CrossRefGoogle Scholar.

22 See Lamy, Pons, and Leturcq, note 10 above:

  1. 1.

    1. A parallel system aligned with the EU ETS;

  2. 2.

    2. A Targeted launch on pilot products: electricity and cement;

  3. 3.

    3. Not a tax, but an EU own resource;

  4. 4.

    4. Fairness ensured by an independent agency;

  5. 5.

    5. Fairness ensured by an independent agency;

  6. 6.

    6. A ‘test’ period for negotiations and necessary exemptions (linking existing ETSs and offering preferential treatment for certain developing countries).

23 COM(2021) 564 final / 2021/0214 (COD), Proposal for a Regulation of the European Parliament and of the Council Establishing a Carbon Border Adjustment Mechanism.

24 General Agreement on Tariffs and Trade, 30 October 1947, 61 Stat. A-11, 55 UNTS 194, https://www.wto.org/english/docs_e/legal_e/gatt47_01_e.htm#articleI.

25 DS58: United States – Import Prohibition of Certain Shrimp and Shrimp Products, https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds58_e.htm.

26 Cottier, T (ed), The Prospects of Common Concern of Humankind in International Law (Cambridge University Press, 2021)CrossRefGoogle Scholar.

27 GA Res 43/53, Protection of Global Climate for Present and Future Generations of Mankind (6 December 1988).

28 Cottier, note 26 above, p 15.

29 Ibid (cf p 18): ‘A group of legal experts was convened by UNEP 1990 to lay down the normative foundations for the 1992 Rio Conference. In its report it stressed the importance to balance rights of states with the interests of international community. To this effect the group invoked the concept of “common concern of mankind”’.

30 F Soltau, ‘Common Concern of Humankind’ in C P Carlane, K R Gray, and R G Tarasofsky (eds.), The Oxford Handbook of International Climate Change Law (Oxford University Press, 2016), pp 202–13.

31 Ibid (‘CCH implies some kind of enhanced commitment and obligation to international cooperation’.).

32 Regulation of the European Parliament and of the Council Establishing the Framework for Achieving Climate Neutrality and Amending Regulations (EC) No 401/2009 and (EU) 2018/1999 (‘European Climate Law’).

33 COM(2021) 551 final, Directive of the European Parliament and of the Council Amending Directive 2003/87/EC Establishing a System for Greenhouse Gas Emission Allowance Trading within the Union, Decision (EU) 2015/1814 Concerning the Establishment and Operation of a Market Stability Reserve for the Union Greenhouse Gas Emission Trading Scheme and Regulation (EU) 2015/757.

34 Cottier, note 26 above.

35 Which, as the author points out, is perfectly ‘commensurate with the principle pacta sunt sevanda’. Ibid, p 64.

36 Lamy, P, Pons, G, and Leturcq, P, ‘GT6 - Towards a European Carbon Border Adjustment Mechanism’ (Europe Jacques Delors, 2021)Google Scholar.

37 Maat, E Pander, ‘Leading by Example, Ideas or Coercion? The Carbon Border Adjustment Mechanism as a Case of Hybrid Climate Leadership’ (2022) 7 European Papers - A Journal on Law and Integration 55, https://www.europeanpapers.eu/es/europeanforum/leading-by-example-ideas-coercion-carbon-border-adjustment-mechanismGoogle Scholar.

38 P Pauw, L Van Schaik, and G Cretti, ‘The CBAM Effect: How the World Is Responding to the EU's New Climate Stick’ (Clingendael Institute, 2022), https://www.clingendael.org/sites/default/files/2022-05/Alert_CBAM_effect.pdf.

40 Lamy, Pons, and Leturcq, note 36 above.

41 Mehling, M, Van Asselt, H, Droege, S, and Das, KThe Form and Substance of International Cooperation on Border Carbon Adjustments’ (2022) 116 AJIL Unbound 213CrossRefGoogle Scholar.

42 European Commission Press Release ‘Joint EU-US Statement on a Global Arrangement on Sustainable Steel and Aluminium’ (31 October 2021), https://ec.europa.eu/commission/presscorner/detail/en/IP_21_5724.

43 D Kleimann, ‘Guest Post: The Worst of Two Worlds: Why the US Blueprint for a Transatlantic Climate Club Authored by Todd Tucker & Tim Meyer Must Be Binned Immediately’ (International Economic Law and Policy Blog, December 2021), https://ielp.worldtradelaw.net.

44 Hermwille, L, et al. , ‘A Climate Club to Decarbonize the Global Steel Industry’ (2022) 12 Nature Climate Change 494, https://doi.org/10.1038/s41558-022-01383-9Google Scholar.

45 Industrial Deep Decarbonisation Initiative (Clean Energy Ministerial and UNIDO, 2021), https://go.nature.com/3kSKnu4.

46 Mehling, Van Asselt, Droege, and Das, note 41 above; Shawkat, A, Cosbey, A and Sartor, O, ‘International Climate Cooperation for Energy-Intensive Industry: A (Realistic) Proposal’ (Agora Industry, 2022)Google Scholar.

47 Lamy, Pons, and Leturcq, note 36 above.