Border Carbon Adjustments

The document analyzes border carbon adjustments (BCA) as tools to prevent carbon leakage and support domestic carbon pricing. It details a 'decision tree' of design options, including trade flow coverage, geographic exemptions, emission scopes (Scope 1, 2, and 3), and methods for calculating embedded emissions. The brief highlights the tension between environmental objectives and industrial protectionism, noting that fragmented national BCA regimes could create a 'spaghetti bowl' of conflicting requirements that increase administrative burdens for exporters and strain international trade and climate cooperation.

• BCA is designed to mitigate 'carbon leakage,' where domestic climate policies drive emissions to other jurisdictions by causing domestic firms to lose market share to foreign competitors who do not pay a carbon price.
• The primary objectives of BCA range from environmental protection to industrial support; while preventing carbon leakage is the most legitimate objective under trade law, some proponents use BCA to protect the competitiveness of domestic firms, which may disadvantage foreign producers.
• BCA coverage typically focuses on a small number of 'emissions-intensive trade exposed' (EITE) commodities, such as steel, aluminum, cement, plastics, chemicals, and nitrate fertilizers, due to administrative complexity and the fact that high-value complex goods are less prone to leakage.
• There are significant legal and environmental trade-offs regarding export rebates: they may be prohibited as export subsidies under WTO rules, contradict environmental goals by exporting unpriced carbon, or conversely, lead to carbon leakage if not provided.
• Calculating embedded emissions involves a choice between using actual emissions data, which provides incentives for firms to decarbonize but is costly and lacks international standards, or using default assumptions, which are easier to administer but may unfairly penalize cleaner producers.
• Crediting foreign policies is complex; while crediting price-based policies is straightforward, crediting non-price-based policies (like anti-deforestation measures) is methodologically difficult and may be illegal under WTO law as an adjustment for internal charges.
• The lack of a global standard for BCAs could result in a 'spaghetti bowl' of diverse national regimes, increasing administrative costs for exporters and potentially undermining the UNFCCC's Paris Agreement if the measures are perceived as protectionist.

APA

Cosbey, A., & Baršauskaitė, I. (2023). Border Carbon Adjustments. International Institute for Sustainable Development. https://www.iisd.org/system/files/2023-08/border-carbon-adjustments-policy-makers.pdf

Chicago

Cosbey, Aaron, and Ieva Baršauskaitė. Border Carbon Adjustments. International Institute for Sustainable Development, 2023. https://www.iisd.org/system/files/2023-08/border-carbon-adjustments-policy-makers.pdf.

Wikipedia

{{cite report |last1=Cosbey |first1=Aaron |last2=Baršauskaitė |first2=Ieva |title=Border Carbon Adjustments |publisher=International Institute for Sustainable Development |date=August 2023 |url=https://www.iisd.org/system/files/2023-08/border-carbon-adjustments-policy-makers.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{cosbey2023border, author = {Cosbey, Aaron and Baršauskaitė, Ieva}, title = {{Border Carbon Adjustments}}, institution = {International Institute for Sustainable Development}, year = {2023}, month = aug, url = {https://www.iisd.org/system/files/2023-08/border-carbon-adjustments-policy-makers.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }