To begin with, participants discussed the current state of policies addressing carbon leakage risks, and in particular, carbon border measures.
From the perspective of countries implementing anti-leakage policies, BCAs are viewed as necessary tools to advance domestic climate ambition, including the gradual phase-out of free emission allowances under emissions trading systems. However, discussions emphasised that carbon leakage risks cannot be sufficiently addressed by a single policy tool and stressed the importance of long-term solutions that build on internationally coordinated efforts.
From the side of many developing and least developed countries (LDCs), carbon border measures are perceived as a form of “green protectionism” that undermine their industrialisation ambitions and disrespect the principle of Common but Differentiated Responsibilities and Respective Capabilities enshrined in the UNFCCC charter.[3] Participants underlined the highly uneven anticipated effects of BCAs across countries and sectors, as well as administrative capabilities of firms and governments as key constraining factors for effective compliance. Some discussants also raised the need for recognising climate mitigation measures beyond carbon pricing policies in the design of carbon border measures to accommodate the limited institutional, technical and enforcement capacities of developing economies.
From an industry perspective, high compliance costs and policy uncertainty were raised as the primary concerns with regards to carbon border measures, particularly in the absence of coordination in its key design features which could result in a patchwork of inconsistent approaches to measuring, reporting and verifying emissions. International organisations can play a key role in avoiding this fragmentation and serve as fora for exchange of best practices and international cooperation, thereby identifying synergies and common needs across jurisdictions. They can also offer technical assistance and impact assessments.
Beyond these different starting points, a range of shared challenges and objectives across all stakeholder groups was identified and discussed.
Accelerating industrial decarbonisation globally
Generally, participants emphasised that industrial decarbonisation – particularly in EITE sectors – remains costly and complex. While renewable energy deployment is increasingly cost-competitive, significant green premiums, i.e., higher costs of low-carbon solutions compared to conventional production, persist in hard-to-abate sectors such as steel, aluminium or chemicals. It was widely agreed that reducing this gap requires more ambitious policies that support innovation, demand creation and international cooperation.
Interoperability of carbon border measures
Significant differences in ETS systems and underlying MRV methodologies are destined to lead to different designs of carbon border measures. As a result, divergences in system boundaries, allocation rules, scope, calculation methods, and verification requirements, among other aspects, risk creating multiple, overlapping compliance demands for producers operating across markets. A commonly identified challenge is to ensure interoperability between BCA regimes, i.e. similar enough carbon accounting standards so that producers are not forced to establish different accounting systems to meet the different demands of each. The overarching goal is to minimise trade frictions and lower compliance barriers.
Effective coordination across institutions and initiatives
Participants identified coordination across institutions, initiatives and policy communities as a shared challenge. Discussions on addressing carbon leakage are currently spread across multiple fora – climate negotiations, trade fora, sectoral initiatives, and technical standard-setting bodies – with often unexplored synergies. While this is to a certain extent unavoidable, participants stressed that this fragmentation can create duplication, inconsistencies, and “technical inertia”. Discussants thus emphasised the need to better connect existing processes, clarify roles, and translate dialogue into more coherent and concrete action to address the “collaboration gap” around the design of anti-leakage policies. Engaging with industry associations, particularly in the areas of carbon accounting methodologies and product standards, was also stressed by some participants.