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EU CBAM: Legal Issues and Implications for Korea
- Author Cheon-Kee Lee
- Series222
- Date2021-09-30
Following the announcement of the European Green Deal in 2019, the European Commission announced on 14 July 2021 a proposal for establishment of the Carbon Border Adjustment Mechanism or "CBAM" as part of its “Fit for 55” legislative package. The Commission explained that in order to avoid carbon leakage and to level the playing field for EU producers it needs a mechanism to impose on imported carbon-intensive products the equivalent amount of carbon price as paid by EU producers.
According to the proposal, for the first three years from 1 January 2023 to 31 December 2025, EU importers of carbon-intensive products will be required to notify a competent authority of an EU Member State of the amount of embedded carbon emissions from their imported products. Starting from January 1, 2026, they will additionally be required to purchase and surrender "CBAM certificates" according to the amount of embedded emissions in their imported products.
The EU alleges that the CBAM intends to avoid carbon leakage and induce voluntary climate mitigation efforts on the part of its trade partners. However, since the CBAM is not only an environmental but a trade measure, there is a controversy over its consistency with WTO law. This would not be the first instance where the EU's environmental ambition has set off international trade disputes, as have been witnessed in WTO disputes such as EU and Certain Member States - Palm Oil (Malaysia)(DS600) and EU - Palm Oil (Indonesia)(DS593), and also in the EU’s previous attempt to incorporate international aviation into the EU ETS. Further, there will likely be significant "trade risks" for interested parties once the Commission's proposal becomes more materialized through the EU's ordinary legislative procedure.
Against this backdrop, this Opinion examines essential elements of the Commission’s CBAM proposal and its compatibility with WTO law, and discusses some strategic implications for Korea’s future negotiations with the EU.
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