The EU CBAM & the Philosopher’s Stone
Many analysts attribute the rise of the far right across Europe to what has been coined a “green back-lash” also known as “green-lash”, whereby citizens blame climate & environmental policies for increasing the cost of living. The EU’s policies did not escape this new political reality.
This resentment has been tapped into by parties stressing the costs of climate & environmental action over their benefits, in a situation where European citizen’s purchasing power has been declining. This internal political dynamic also bears relevance for the more externally facing elements of the European Green Deal, notably the EU’s Carbon Border Adjustment Mechanism. Indeed, amidst fears that ambitious domestic climate & environmental policies would increase the costs of production for EU companies, while an open-market would allow cheaper and less environmentally friendly goods from trade partners to stream in, the carbon border adjustment mechanism was oft lauded as a way to prevent unfair competition. In brief, the EU CBAM could be said to have been preventively conceived to avoid a green-lash from concerned EU industries. To enable a domestic ‘Just’ Transition, the EU had to prevent the phenomena of ‘carbon leakage’: companies located in the EU risked moving their production to jurisdictions with more lenient (read cheaper) environmental policies.
However, the ethical implications of such a strategy for shoring up internal political acceptability for the European Green Deal, have remained out of the limelight. This is especially true of the impacts of the EU-CBAM on both the developing world and key players in climate governance. It appears that after successfully passing such a policy within the EU, the lion’s share of the work remains for its implementation to stand a fighting chance: the EU must ensure that its own Just Transition does not hinder efforts at a global Just Transition.
Imposing a levy on importers was proposed as a solution to ‘level the playing field’, while simultaneously being touted as a purely internal environmental policy. However, as demonstrated by the multitude of legal and trade scholars pouring over the topic, the EU’s Carbon Border Adjustment Mechanism remains a far cry from a purely domestic measure and has far-reaching consequences.
Indeed, once importers are asked to pay a price on the embedded emissions of their goods, there is a high chance such a cost will be passed through to consumers. This would thereby run the risk of reducing the market-share of imported goods. The only way to avoid the levy, would be if the concerned imports are already included in an equivalent emission trading system in its country of production.
The measure therefore attracted significant criticism, and was argued to be aimed predominantly at China but is also expected to severely impact smaller economies with high trade interdependencies with the EU. For instance, the Centre for Global Development initially predicted the EU CBAM would cost Mozambique 1.6% of GDP annually. While more recent modelling exercises suggest trade diversification would partly mitigate such losses, this nonetheless illustrates the consequent external impact of the EU’s policy, and the fear it has instigated. A main point of criticism levelled at the EU was its failure to constructively co-design its policy with external trading partners that would be greatly affected by it, feeding accusations of green colonialism.
Legal scholars also underlined the normative tension which exists between the World Trade Organisation’s “Most Favoured Nation” clause, which requires the EU to extend the same trade terms to all trading partners, and the Common But Differentiated Responsibility clause of the Paris Agreement, which suggests that countries have different levels of responsibility for climate action.
In its 2023 report, the United Nations Trade and Development intergovernmental body stressed that China and India were likely to challenge the EU CBAM because “the introduction of distinct carbon pricing certificates based on a product’s country of origin could infringe on the former clause”. While the EU’s CBAM has been described by many, as a show of geopolitical clout, alienating key players responsible for approximately a third of global emissions, but who are also big investors in environmental technological innovation, seems like a hazardous strategy in dealing with a global crisis.
An earlier report from the UNCTAD highlights that while the possibility for trading partners to implement national emission trading systems, the proposed policy risked “unfairly penalizing the exports of developing countries because these economies have often less capacity to adapt to new specific standards”. Indeed, even the EU’s emission trading system had well over a decade to mature into its current viable form – with many failures marring the road, it would therefore appear unjust to ask least developed countries to shoulder the high administrative costs of implementing their own domestic emission trading schemes in a much shorter period, especially in countries where much more cost effective strategies for much more drastic climate action exist.
Beyond these issues, the crux might be the question of revenue. Indeed, the EU’s policy is expected to create growth in OECD countries, and generate its own revenue, while creating costs for developing countries. This would contradict both principles that underpin current conceptions of global distributive climate justice, namely the ability to pay principle, and the polluter pays principle.
Far from a blanket criticism of a policy which remains a tool in globalising carbon pricing, and participates in setting up closer monitoring infrastructure to track companies climate performances, the arguments outlined above call for careful decision making when it comes to the implementation of the EU’s Carbon Border Adjustment Mechanism. Most notably, recent research suggests that revenue recycling could increase the political acceptability of the EU CBAM on the international scene. Others have added that the revenue could go a long way in providing financing for climate adaptation in the developing world. Similarly, a recent report by the Jacques Delors Institute makes suggestions for leveraging the EU CBAM for further development cooperation and climate finance. Such proposals, combined with more equitable partnerships with concerned countries, bear potential to mitigate the adverse effects of what has been criticised by the International Relations community as the EU sliding back into unilateralism.
It also comes to the fore that in an increasingly fragmented and geopoliticised global (dis)order, and in line with Nobel laureate Angus Deaton’s plea, substantive philosophy and ethics should take on a greater part in policymaking, at the very least on par with economics.
