Exporting the european green deal: the wto compatibility of the EU's carbon border adjustment mechanism

• Author: Susannah Dibble
• Position: J.D. candidate 2023, Georgetown University Law Center
• Pages: 757-785

EXPORTING THE EUROPEAN GREEN DEAL: THE

WTO COMPATIBILITY OF THE EU’S CARBON

BORDER ADJUSTMENT MECHANISM

SUSANNAH DIBBLE*

ABSTRACT

While environmental protectionism and trade law are often thought to be

in conflict, the EU’s proposal for a climate border adjustment mechanism

(CBAM) reflects a growing interest in using trade measures to combat climate

change. Carbon border taxes, like CBAM, seek to address the issue of carbon

leakage, which occurs when producers move to a third country with more lax

emissions standards. With a planned rollout date of October 2023, CBAM

would apply only to an initial five sectors and become a component of the

Emissions Trading System (ETS), EU’s domestic cap-and-trade scheme, which

already sets a domestic price for carbon emissions. Producers would be able to

deduct the cost of any carbon tax paid in the country of origin.

If implemented, CBAM would be the first measure of its kind, offering a

novel opportunity to assess compatibility with WTO law and international

environmental law. Concerns have been raised that the mechanism could vio-

late World Trade Organization (WTO) law, specifically Articles I, III, and XX

of the General Agreement on Tariffs and Trade of 1994 (GATT). In designing

a mechanism that is WTO compliant, the EU must strike a balance and ensure

that it is not in violation of environmental law obligations, such as the princi-

ple of common but differentiated responsibilities (CBDR).

While the EU can make changes to the proposal to ensure better compliance,

it is the WTO that has meaningful authority to better align its policies with

environmental obligations. As the developments at the 2021 United Nations

Climate Change Conference (COP26) have shown, there is growing consensus

on the need for global carbon markets. The future of trade and climate is inher-

ently intertwined, and the WTO objective of sustainable development cannot be

achieved without evolving to meet the current threat of climate change.

I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 758

II. CARBON PRICING MECHANISMS . . . . . . . . . . . . . . . . . . . . . . . . 759

A. Carbon Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 760

B. Cap and Trade. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 760

* J.D. candidate 2023, Georgetown University Law Center. The author is grateful to Professor

Timothy C. Brightbill and Professor Edith Brown Weiss for their feedback and guidance on this

note. V

C 2023, Susannah Dibble.

757

C. Border Tax .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 761

III. CARBON BORDER ADJUSTMENT MECHANISM . . . . . . . . . . . . . . . 762

IV. WTO COMPATIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 763

A. Article I—Most Favored Nation . . . . . . . . . . . . . . . . . . . 763

B. Article III—National Treatment. . . . . . . . . . . . . . . . . . . 765

C. Article XX—General Exceptions . . . . . . . . . . . . . . . . . . . 768

1. Article XX—Categories .. . . . . . . . . . . . . . . . . . . 768

2. Article XX—Chapeau . . . . . . . . . . . . . . . . . . . . . 769

V. COMPATIBILITY WITH INTERNATIONAL ENVIRONMENTAL LAW . . . . 771

A. Common but Differentiated Responsibilities . . . . . . . . . . . 772

B. Principle 12, Rio Declaration. . . . . . . . . . . . . . . . . . . . . 774

VI. EU COMPLIANCE WITH WTO AND ENVIRONMENTAL LAW

OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 774

A. LDC Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 775

B. Pursue Negotiations . . . . . . . . . . . . . . . . . . . . . . . . . . . 777

C. Messaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 778

VII. THE FUTURE OF THE WTO’S RELATIONSHIP WITH CLIMATE

CHANGE . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 780

A. Judicial Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . 781

B. Global Carbon Price . . . . . . . . . . . . . . . . . . . . . . . . . . . 782

C. Restart Trade and Environment Negotiations . .. . . . . . . . 783

VIII. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 783

I. INTRODUCTION

As part of the European Green Deal, the European Commission has

put forth a proposal for a carbon border adjustment mechanism

(CBAM).

1

With a proposed rollout date of October 2023, CBAM seeks

to prevent carbon leakage, which occurs when producers, due to

stricter climate policies in their home country, emit in a third country

by imposing a border adjustment on products in certain sectors based

on their carbon emissions.

2

A challenge for the European Union

(EU) is to design a mechanism that is compliant with World Trade

Organization (WTO) law and in line with international environmen-

tal law obligations. Environmental protection and trade law are often

1. This note was written in the fall of 2021 before the CBAM regulation was adopted. See

Proposal for a Regulation of the European Parliament and of the Council Establishing a Carbon Border

Adjustment Mechanism, at 1, COM (2021) 564 final (July 14, 2021).

2. See id. at 2.

GEORGETOWN JOURNAL OF INTERNATIONAL LAW

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