Addressing carbon leakage: the Carbon Border Adjustment Mechanism and its challenges under WTO rules and the Paris Agreement

The EU’s Carbon Border Adjustment Mechanism (CBAM), introduced by the “Fit-for-55” legislative package, seeks to counteract carbon leakage and maintain the EU’s carbon neutrality goals by 2050. This paper evaluates the CBAM’s compatibility with two key international frameworks: the General Agreement on Tariffs and Trade (GATT) and the Paris Agreement. Specifically, it assesses whether the CBAM aligns with GATT provisions on non-discrimination and examines concerns related to the principle of Common But Differentiated Responsibilities. By addressing critiques from scholars and developing countries, this analysis explores whether the CBAM could serve as a constructive mechanism within international trade and environmental agreements if accompanied by equitable adjustments.