Abstract

Developing carbon mitigation procedures among different jurisdictions has often created the risks of carbon leakage. One way of addressing the complexities created as a result is to consider the application of the Carbon Border Adjustment Mechanism (CBAM) to resolve emerging climate issues within the international trade framework. This paper discusses the intricacies of adopting a CBAM in the United States, its domestic competitiveness, trade with international partners, and the leakages that may arise as a result. This tool is deployed in the need to curb emissions arising from global trade, while at the same time understanding the implications of stringent environmental policies to prevent protectionism on trade partners, particularly those from emerging and developing economies; and bolster domestic production and supply systems for delivering clean and low carbon] and affordable goods. CBAM could be applied in balancing the economic (costs and affordability) implications of carbon mitigation with environmental regulation and security of international trade issues. The paper highlights the emergence of CBAM as a climate change mitigation tool in economies such as the EU and the increasing potential adoption in the United States, considering regulatory developments such as the Inflation Reduction Act of 2022, federal legislative bills, and existing laws that require the advancement of climate objectives. It also points to industry best practices and guiding principles that may provide helpful tools for curbing emissions, preventing green protectionism, and ensuring more coordinated sustainable trade practices.

This paper will be part of the OGEL Special Issue on "International Energy and Investment Law Implications of the US Inflation Reduction Act". More information here www.ogel.org/news.asp?key=762