Border Carbon Adjustment: Questions and Answers (But More of the Former)
Those countries that are set to take strong action to address climate change will worry that their actions put their domestic industries at risk of competitive disadvantage relative to less regulated foreign competitors. They may also worry that their climate policies will be less effective if they simply result in higher emissions elsewhere (leakage). Some have proposed border carbon adjustment (BCA) as a way to deal with these challenges. BCA can involve charges at the border, or requirements that imports buy into domestic cap-and-trade schemes, but the essential feature is a desire to "level the playing field" between domestic and foreign competitors. This brief paper examines the key issues with BCA, including effectiveness, trade legality, administrative challenges and wider international impacts.