The carbon border adjustment trilemma

• As countries move to achieve net-zero targets there is a risk their industries will relocate to countries where emitting CO2 is cheaper and easier. • An option for addressing this so-called carbon leakage is applying domestic carbon prices to imported products, or Carbon Border Adjustment (CBA). Both the UK and US are considering CBA and the EU has committed to introducing it. • It’s still unclear how exactly CBA will be designed and the EU Commission will publish a proposal in July. • CBA design offers up a trilemma between the policy goals of environmental ambition, technical feasibility and fairness. • This trilemma means that there is no optimal solution for CBA design, but rather trade-offs between goals. • CBA also gives rise to the need for new forms of trade and climate cooperation to determine which other countries or producers have equivalent pricing, and therefore should be exempted. This might mean simply agreeing broad shared aims, such as net-zero targets, or much more detailed sector-specific analysis. • The upcoming G7 and COP, both hosted by the UK, provide an opportunity to make progress on these crucial questions for designing CBA and forming a larger transatlantic climate alliance.