Practical obstacles and structural legal constraints in the adoption of ‘defensive’ policies: comparing the EU Carbon Border Adjustment Mechanism and the US Proposal for a Border Carbon Adjustment

Abstract

Abstract This paper analyses the EU proposal for a carbon border adjustment mechanism (CBAM) and a recent US proposal for the establishment of a border carbon adjustment (BCA) as examples of ‘defensive’ policies, broadly informed by an economic level playing field and an environmental level playing field rationale. From an environmental law perspective, the CBAM's narrow focus on price-based policies, distortions of competition and trade intensity is unsatisfactory; however, the EU CBAM is more feasible in practical terms and overall more likely to be WTO law compatible than the US proposal for a BCA. An environmental level playing field perspective is associated with several practical problems: these relate to the determination of environmental equivalence, the identification of appropriate remedies, and the demarcation of the scope of application of the relevant regulatory arrangements. Further, measures informed by an economic level playing field rationale can be easier to justify under WTO law. Taking stock of these findings, the paper concludes that practical obstacles and structural legal constraints push towards a narrower focus on an economic level playing field, as a matter of regulatory design.