The EU Carbon Border Adjustment Mechanism and how non-EU Countries May Adopt a Grandfathered Emissions Trading System

Abstract

The European Union's Carbon Border Adjustment Mechanism (CBAM) is a climate policy designed to impose carbon taxes on imports, aiming to mitigate the risk of carbon leakage and promote fair competition. However, many non-EU countries view the CBAM as an additional trade barrier. Here, the European External Action Service (EEAS) may offer a solution by assisting non-EU countries in designing domestic cost-effective grandfathered emissions trading systems (ETS) that would enable them to avoid the politically controversial CBAM payments. Policy lessons from the United States and the European Union offer valuable insights that can guide the EEAS in shaping such a global climate policy.

Keywords: Climate policy; Carbon Border Adjustment Mechanism; EEAS; Policy innovation; Carbon leakage; Trade barrier; EU Emission Trading System; US Acid Rain Program.