The long-term feasibility of border carbon mechanisms: An analysis of measures proposed in the European Union and the United States and the steel production sector

Abstract

Carbon leakage occurs when greenhouse-gas intensive production relocates to jurisdictions with less stringent or no emissions constraint. Observable increases in policy proposals to introduce border carbon mechanisms (BCM) to manage leakage risks have prompted scholars to examine potential conflicts with international trade rules. This paper examines longitudinal data over the period 2012-21 to reveal trends in the steel sectors of the US and EU and explores the consistency of proposed border carbon measures in those jurisdictions not just with international trade rules but also with environmental integrity, UNFCCC and sovereignty criteria.

The study identifies that the EU went from being an exporter to a net importer of steel over the period examined, while the US remained a relatively steady importer throughout the period. It also identifies areas within both the EU and US border carbon mechanism proposals that have the potential to prompt concerns from other countries in future; similar to the experiences in the EU with coverage of intercontinental aviation in its emissions trading system in 2012. It identifies that elements from global sectoral agreements would help to mitigate the risks of future challenges to border carbon mechanisms, which ultimately helped to overcome concerns within intercontinental aviation.

The article extends understanding of the role border adjustments can be applied within international climate and trade policy. As more countries seriously consider border carbon adjustments, the article will be of high value not just to policy makers but also managers of corporations seeking to navigate through decarbonisation challenges in hard to abate sectors such as steel, aluminium and cement.