Trade body the International Emissions Trading Association (Ieta) has warned of an emerging "carbon border jungle", as countries increasingly react to the EU's carbon border adjustment mechanism (CBAM) by setting up their own similar measures.
Without a shared framework or mutual recognition mechanisms, the "proliferation of CBAM-like instruments" could lead to "regulatory fragmentation, double compliance burdens and trade frictions", Ieta warned in a report published this week.
Questions of methodological alignment, verification standards and scope compatibility will be at the heart of future discussions on interoperability between CBAMs and carbon pricing systems, which is itself becoming an increasingly debated issue in climate policy.
In this context, multilateral fora such as the World Trade Organization and the UN's climate arm, the UNFCCC, will become increasingly important "arenas for dialogue, but also for dispute", Ieta said. The sentiment echoes comments made by Berlin-based think-tank Agora Industry project lead Aylin Shawkat at a climate event in Seville earlier this month that "fora on the interoperability of the [carbon border] mechanisms would really move the needle".
The UK and Australia are actively designing domestic CBAMs, and interest is growing in other G20 economies, Ieta said.
Speaking in Seville, Andrei Marcu, executive director of Brussels-based think-tank the European Roundtable on Climate Change and Sustainable Transition, warned of the risk of ending up with a "patchwork of CBAMs".
Reena Skribbe, CBAM expert at research body the Oeko-Institut, also flagged the importance of harmonising CBAMs. "It would be more efficient to jointly pursue a CBAM model instead of developing many different forms, which generate considerable bureaucratic hurdles," Skribbe told Argus.
Ieta said that one of the "pivotal" questions is how, and under which conditions, the EU will recognise carbon prices already paid in exporting countries, the methodologies for which are to be enshrined in a CBAM review expected before the end of this year.
Another "key area" to monitor, Ieta said, is bilateral or regional co-ordination, such as the recently announced EU-UK initiative to link their emissions trading systems (ETS), which would enable exemptions from respective CBAMs.
Sam Reed, head of UK ETS scope expansion at the UK's Department for Energy Security and Net Zero, voiced his "optimism" that CBAM can "get us to linked global carbon markets". The European Commission's Sebastien Paquot, who heads the task force on international carbon pricing and markets diplomacy, said at the event that CBAM supports carbon market interoperability because it "helps different ETSs communicate with each other".
Global carbon prices have long been a popular instrument among economists for reducing emissions. At a discussion this week on the potential use of carbon offsets issued under Article 6 of the Paris climate agreement to help reach the EU's 2040 climate target, Potsdam Institute for Climate Action Research chief economist Ottmar Edenhofer said carbon prices are "much more interesting than Article 6".
