Pitfalls of the EU’s Carbon Border Adjustment Mechanism

Byeongho Lim, Kyoungseo Hong, Jooyoung Yoon, Jeong-In Chang and Inkyo Cheong
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Byeongho Lim: Korea Maritime Institute, Pusan 4911, Korea
Kyoungseo Hong: Graduate School of Arts and Science, New York University, New York, NY 10016, USA
Jooyoung Yoon: Department of International Trade, Sunchon National University, Sunchon 57922, Korea
Jeong-In Chang: Korea Maritime Institute, Busan 4911, Korea
Inkyo Cheong: Department of International Trade, Inha University, Incheon 22212, Korea

Energies, 2021, vol. 14, issue 21, 1-18

Abstract: The European Union (EU), which has led international discussions on global warming, officially announced its plan for the Carbon Border Adjustment Mechanism (CBAM) in July 2021. Many existing studies have indicated the CBAM will curtail greenhouse gases, and will subsequently be positive in terms of reducing global warming. However, serious legal issues and trade disputes are expected in terms of the compatibility of the CBAM with the trade rules of the General Agreement on Tariffs and Trade (GATT). Contrary to the EU’s explanation, the international community has a strong view of CBAM as a new trade barrier under the guise of preventing global warming. Above all, this is because it is an arbitrary measure by the EU and not the one that has been internationally agreed upon. Therefore, this paper tries to identify the pitfalls and estimate the global cost of CBAM, arguing that the mechanism is not in line with international trade rules, and that many countries will not sit back and suffer from it. The world economy will inevitably face a vicious cycle of trade retaliation. The CBAM will drive up trade costs and cause another trade distortion. While the goal of preventing climate change is good, the CBAM scheme is too costly for the world economy.

Keywords: carbon border adjustment mechanism (CBAM); general agreement on tariffs and trade (GATT); carbon border tax; carbon emissions; carbon pricingfi (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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