In this report, Climate Strategies members make a case for international cooperation in relation to Border Carbon Adjustments (BCAs) and assess the current state of play to enable this cooperation. This is the final output of our project ‘Making the Trade System Work for Climate 2.0’, which investigates how international trade policy can be amended to better support global climate targets – focusing on BCAs and the potential of plurilateral agreements to increase climate-trade policy efficacy.
International cooperation on climate change and trade is intensifying, as highlighted by numerous initiatives launched at the multilateral, plurilateral, and bilateral levels. This is an encouraging development, signalling the major role of trade policy in supporting decarbonisation efforts and facilitating adaptation to climate change. Yet, at the same time, many of these initiatives eschew one of the most contested issues at the interface of trade and climate policies: Border Carbon Adjustments (BCAs).
The EU Carbon Border Adjustment Mechanism (CBAM) is unlikely to be the last or only BCA, with various jurisdictions contemplating similar measures as they adopt increasingly ambitious climate change mitigation policies and pursue other policy objectives, such as improved national security or industrial policy. With many jurisdictions pursuing their own BCA designs and implementation strategies, however, come increased risks of the uncoordinated proliferation of divergent approaches, which in turn can translate into greater uncertainty, higher transaction and administrative costs, and detrimental effects on international cooperation – including climate diplomacy – more generally.
Against this backdrop, this report makes a case for international cooperation on or relating to BCAs and assesses the prospects for such cooperation. The report applies an analytical framework that examines both the “input legitimacy” and “output legitimacy” of international cooperative initiatives. We apply this analytical framework to three emerging models of cooperation relating to BCAs, namely the G7 Climate Club, the transatlantic talks on a Global Arrangement on Sustainable Steel and Aluminium (GASSA), and the Inclusive Forum on Carbon Mitigation Approaches (IFCMA) launched by the Organisation for Economic Co-operation and Development (OECD).