The European Union has been working on reducing its carbon footprint consistent with the Paris Agreement commitments and its updated 2030 reduction levels. Part of its effort has been to impose costs on carbon content of certain high energy-consuming industries. To avoid carbon leakage, the EU has been looking at the possibility of imposing a carbon border adjustment mechanism. The European Commission’s work program has the EC presenting a draft proposal of such a mechanism in the second quarter of 2021. See EU Green Deal (carbon border adjustment mechanism), https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12228-Carbon-Border-Adjustment-Mechanism. The Inception impact assessment released by the European Commission is embedded below.090166e5ccbe6acd-2
The EU has indicated that whatever action it takes in its carbon border adjustment mechanism will be consistent with WTO obligations.
The Biden Administration, in the President’s 2021 Trade Policy Agenda, has indicated an openness to considering a carbon border adjustment. See 2021 Trade Policy Agenda and 2020 Annual Report of the President of the United States on the Trade Agreements Program, March 2021, page 3, https://ustr.gov/sites/default/files/files/reports/2021/2021%20Trade%20Agenda/Online%20PDF%202021%20Trade%20Policy%20Agenda%20and%202020%20Annual%20Report.pdf. The section on “Putting the World on a Sustainable Environment and Climate Path” is copied below (emphasis added).
“The United States and the global community face a profound climate crisis, and the Biden Administration is committed to pursuing action at home and abroad to avoid the increasingly disruptive and potentially catastrophic impact of climate change. The United States will work with other countries, both bilaterally and multilaterally, toward environmental sustainability.
“As part of this whole-of-government effort, the trade agenda will include the negotiation and implementation of strong environmental standards that are also critical to a sustainable climate pathway. These standards will include promoting sustainable stewardship of natural resources, such as sustainable fisheries management, and preventing harmful environmental practices, such as illegal logging and wildlife trafficking. This comprehensive approach may also entail leveraging our strong bilateral and multilateral trade relationships to raise global climate ambition.
“The Biden Administration will work with allies and partners that are committed to fighting climate change. This will include exploring and developing market and regulatory approaches to address greenhouse gas emissions in the global trading system. As appropriate, and consistent with domestic approaches to reduce U.S. greenhouse gas emissions, this includes consideration of carbon border adjustments. Additionally, the Biden Administration will work with allies as they develop their own approaches and act against trading partners that fail to meet their environmental obligations under existing trade agreements.
“The trade agenda will support the Biden Administration’s comprehensive vision of reducing greenhouse gas emissions and achieving net-zero global emissions by 2050, or before, by fostering U.S. innovation and production of climate-related technology and promoting resilient renewable energy supply chains.”
President Biden’s Special Envoy on Climate traveled to the United Kingdom and to the European Union the week of March 8. See U.S. Department of State, Special Presidential Envoy for Climate John Kerry Engages European Allies on Climate Ambition, March 6, 2021, https://www.state.gov/special-presidential-envoy-for-climate-john-kerry-engages-european-allies-on-climate-ambition/ (traveling to London, Brussels and Paris March 8-10). A Financial Times article indicated that Special Envoy Kerry was pushing the European Commission to hold up any announcement on a carbon border adjustment mechanism until after the November 2021 meeting of parties to the Paris Agreement in Glasgow (COP26) to see if sufficient commitments were made to make such a mechanism unnecessary. The article indicated that a draft proposal was expected from the EC in June. See Financial Times, John Kerry warns EU against carbon border tax, March 12, 2021, https://www.ft.com/content/3d00d3c8-202d-4765-b0ae-e2b212bbca98 (“The former secretary of state told the Financial Times he was ‘concerned’ about Brussels’ forthcoming plans for a carbon border adjustment mechanism and urged the EU to wait until after the COP26 climate change conference in Glasgow to move forward.”).
Obviously, Special Envoy Kerry’s comments prioritize diplomacy over development of a mechanism to deal with countries who are slow to address the pressing climate challenges. The EU system, of course, has a process for approving proposals like the carbon border adjustment mechanism which if followed as presently planned presumably would not result in adoption in 2021. It is not clear from the press article if the U.S. concern is with the planned June proposal or with ensuring that no adoption happens until after the Glasgow meeting in November. If the latter, there should be little problem for the EU to ensure no adoption in 2021, and the EC proposal could include language about the COP 26 meeting. If the former, postponing action by the EC would push back adoption by at least six months which may or may not be acceptable to the EU.
With USTR nominee Katherine Tai expected to be confirmed by the U.S. Senate later this week, it is unclear based on the press article of the meeting between the EC and Special Envoy Kerry if USTR would hold up efforts to find common ground with the EU on the trade approach on climate change, including on what a carbon border adjustment mechanism would look like so that there is a united front between the U.S. and the EU whenever the mechanism is presented (or at least adopted).
With China, the largest emitter, having announced that it will continue to increase it emissions until 2030, the efforts of the EU and U.S. to speed up the global reductions in emissions will face insurmountable obstacles if there isn’t greater efforts by all, including China. See Politico, US and EU search for a China climate doctrine that works, The first European trip by US climate envoy John Kerry sparks a joint effort to get China to cut its emissions, March 9, 2021, https://www.politico.eu/article/u-s-and-eu-search-for-a-china-climate-strategy-after-snub/.
There is little doubt that if all major emitters are not in solidarity on the need to increase the depth of carbon reductions quickly, there will be carbon border adjustment mechanisms put in place by the EU and likely by the U.S. to ensure actions taken in countries working hard toward major reductions in emissions by 2030 are not undermined by less ambitious objectives. A joint effort by the U.S. and EU would be more effective than the EU going it alone. Let’s hope common ground is found on how to proceed.