The European Union's CBAM as a de facto Climate Club: The Governance Challenges
The European Commission has announced far-reaching reforms to accelerate the reduction of greenhouse gas emissions. Among the proposals constituting the European Green Deal is the adoption of a Carbon Border Adjustment Mechanism (CBAM) to prevent carbon leakage. In practice, however, CBAM will not only act as a shield for the European Emissions Trading System (ETS) but also incentivize other countries to implement compatible carbon pricing schemes. We argue that the EU's CBAM thus de facto has the features of a climate club, but the current proposals and debate do not address how the club would be governed, addressing them involves a trade-off between maintaining control over the direction and ambition of climate policy and CBAM's legitimacy.