February 8, 2023
U.S. Carbon Border Adjustments Proposals and World Trade Organization Compliance
The European Union announced that it had finalized plans to institute the world’s first carbon border adjustment mechanism (CBAM), which will likely bring U.S. proposals for a similar mechanism back to the forefront this year. In a new insight, Director of International Economic Policy Tori Smith explains how a CBAM works and urges caution for supporters of such a policy given its risk of violating World Trade Organization (WTO) commitments.
- Members introduced legislation during the 117th Congress to create a CBAM to tax carbon-intensive sectors, but the issue is still widely debated.
- A CBAM in any form would likely run the risk of violating international trade commitments under the WTO.
- Compliance with U.S. commitments under the WTO should be a top priority when considering any mechanism to tie trade and climate policy because disregarding WTO commitments could draw retaliation from trading partners.