Principles and Best Practice in Border Carbon Adjustment: A modest proposal

The briefing argues that as countries increase climate ambition and carbon pricing, border carbon adjustment (BCA) mechanisms are becoming inevitable to prevent carbon leakage. To avoid these tools becoming protectionist or causing trade disputes, the author proposes a framework of principles—such as prioritizing leakage protection over competitiveness and granting credit for foreign carbon prices—and best practices, including the use of international data standards. The document suggests the World Trade Organization (WTO) as the ideal multilateral forum for discussing these guidelines to provide a bulwark against national protectionist pressures.

• Border carbon adjustment (BCA) is transitioning from a theoretical concept to an active policy tool, with the European Commission proposing a mechanism by 2023 and Canada, the United States, and the United Kingdom indicating intentions to implement similar regimes.
• BCA is viewed as a primary method to prevent 'leakage,' which occurs when greenhouse gas emissions increase in other countries as a result of strict domestic climate policies, particularly in energy-intensive trade-exposed sectors like chemicals, aluminum, cement, and steel.
• The author proposes five core principles for BCA: prioritizing leakage protection over domestic competitiveness or coercion, sharing revenue with exporting firms or countries, avoiding 'double protection' by adjusting for domestic shields, granting credit for equivalent foreign carbon prices (but not non-price policies), and maintaining openness and transparency.
• Recommended best practices for implementation include limiting coverage to goods subject to domestic carbon pricing, allowing foreign producers to challenge default GHG intensity data, extending coverage to downstream sectors only if leakage risks are equivalent to upstream sectors, prohibiting national exemptions based on climate ambition, using international accounting standards (such as ISO 14064 or the GHG Protocol), and establishing independent appeal mechanisms.
• The World Trade Organization (WTO) is identified as the most suitable forum for multilateral discussions on BCA principles, specifically suggesting an informal working group or referencing the Trade and Environmental Sustainability Structured Discussions at the November 2021 Ministerial Conference (MC12).

APA

Cosbey, A. (2021). Principles and Best Practice in Border Carbon Adjustment: A modest proposal. International Institute for Sustainable Development. https://www.iisd.org/system/files/2021-09/border-carbon-adjustment-modest-proposal.pdf

Chicago

Cosbey, Aaron. Principles and Best Practice in Border Carbon Adjustment: A modest proposal. International Institute for Sustainable Development, 2021. https://www.iisd.org/system/files/2021-09/border-carbon-adjustment-modest-proposal.pdf.

Wikipedia

{{cite report |last1=Cosbey |first1=Aaron |title=Principles and Best Practice in Border Carbon Adjustment: A modest proposal |publisher=International Institute for Sustainable Development |date=September 2021 |url=https://www.iisd.org/system/files/2021-09/border-carbon-adjustment-modest-proposal.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{cosbey2021principles, author = {Cosbey, Aaron}, title = {{Principles and Best Practice in Border Carbon Adjustment: A modest proposal}}, institution = {International Institute for Sustainable Development}, year = {2021}, month = sep, url = {https://www.iisd.org/system/files/2021-09/border-carbon-adjustment-modest-proposal.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }