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Reliance on the “Brussels effect” to tackle carbon leakage risks undermining the global climate action agenda, according to the International Chamber of Commerce (ICC). The global business organisation has called on governments to establish a new multilateral process to agree on global norms for the design, implementation and coordination of border carbon adjustments – reflecting growing concern within the business community about the potential adverse impacts of a proliferation of unilateral trade measures to tackle carbon leakage.
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In a new paper, “Global Principles for Effective Border Carbon Adjustments”, the global business organisation recognises the clear rationale for introducing border carbon adjustments given prevailing asymmetries in domestic climate policies – but cautions that a patchwork of uncoordinated national interventions could create severe compliance challenges for companies trading internationally and, moreover, undermine essential international cooperation to fight climate change.
Border carbon adjustments must be designed in a way to advance climate goals, foster fair competition and promote international commerce. And, crucially, they must not constitute – or be perceived as – a means of arbitrary discrimination or disguised protectionism.
We know the real solutions to climate change lie in radical multilateral and multilevel cooperation and effective public and private partnerships. Given the urgency of the issues at stake, we encourage the G20 to kick-start an inclusive international dialogue on this agenda without delay.
Shaping the future of effective border carbon adjustments
Building on the experience of companies during the transitional implementation of the EU Carbon Border Adjustment Mechanism, ICC proposes that any future set of international principles for effective border carbon adjustments should include:
- Compliance with WTO rules and fundamental UNFCCC and Paris Agreement principles
- Fostering international cooperation, including through targeted exemptions for least developed countries and small island developing states
- Risk based approaches, including reasonable di miminis thresholds
- Interoperability, harmonised calculation methodologies and recognition of equivalence
- Real consultation with trading partners and business in the design phase
- Real testing, learning and improvement in the implementation phase
According to the new paper, such principles should be developed by trade and environment ministers – as part of a process kick-started by the G20 – with a new international technical body eventually established to support ongoing policy oversight and coordination.
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