How to design border carbon adjustments

Border Carbon Adjustments (BCAs) are regarded as a way to address the risk of carbon leakage. Carbon leakage is an undesired side-effect from stringent climate policy measures of a jurisdiction. As trade is one driver of carbon leakage, an import charge or a rebate of CO2 costs for exports have been discussed in light of unequal climate policy implementation around the globe since the Kyoto Protocol was agreed in 1997. But no such system has been implemented. With the Paris Agreement in force, ambitions continue to differ considerably between the treaty's parties and BCAs have re-entered the political agendas. The design of BCAs has to include various features to make the tool effective against carbon leakage and in order to meet with existing international trade law. Policymakers have to consider, among other things, the environmental effectiveness, the details of calculations and data availability, and not least the diplomatic demands a BCA will bring about. This chapter looks into the history and elements of BCAs, the design process and related legal challenges.