The European Commission has announced far-reaching reforms to accelerate the reduction of greenhouse gas emissions. Among the proposals constituting the European Green Deal is the adoption of a Carbon Border Adjustment Mechanism (CBAM) to prevent carbon leakage. In practice, however, CBAM will not only act as a shield for the European Emissions Trading System (ETS) but also incentivize other countries to implement compatible carbon pricing schemes. We argue that the EU's CBAM thus de facto has the features of a climate club, but the current proposals and debate do not address how the club would be governed. While the literature focuses on legal and economic aspects of CBAM design, there is little debate about the governance challenges it entails. We identify two major challenges. CBAM will put pressure on trade partners to introduce carbon pricing and/or bring it into line with the price of EU ETS allowances. However, the future availability and thus price of ETS allowances is determined within the EU. Secondly, the method for calculating embedded carbon is left to the discretion of the European Commission. EU policymakers need to acknowledge the challenges that follow from setting up a de facto climate club, and that addressing them involves a trade-off between maintaining control over the direction and ambition of climate policy and CBAM's legitimacy.

No abstract

No abstract

As part of the European Green Deal, the European Commission has launched a tool to protect the fulfilment of Europe's climate policy targets – the carbon border adjustment mechanism (CBAM). It is thought that the CBAM will spark stiff resistance from Europe's external trade partners, potentially undermining the initiative. How this plays out will depend in part on who the opponents and potential allies are – and how the European Union (EU) engages with them. But which non‐EU countries have a stake in the CBAM? The criteria for selecting third countries that are relevant for the CBAM are often implicit, which can lead to contradictory policy analyses and confused climate diplomacy. This research note compares three different perspectives that result in different lists of non‐EU countries that are important for the success of the CBAM. Awareness of these three perspectives amongst EU actors can help the CBAM succeed.

No abstract