Climate action in the making: business and civil society views on the world's first carbon border levy

The paper investigates how non-state actors within the EU—specifically business and civil society organizations—view the proposed EU carbon border adjustment mechanism (CBAM). Against the backdrop of the EU Green Deal and the goal of climate neutrality by 2050, the EU seeks to strengthen its carbon pricing through the EU Emissions Trading System (EU ETS) and phase out free allowances. CBAM is proposed to address carbon leakage and competitiveness concerns as EU carbon pricing tightens, potentially substituting for free allocation under the EU ETS. Additional objectives have been associated with CBAM, including incentivizing stronger climate policies globally, generating EU revenues, and asserting EU climate leadership. The research question centers on the extent of support or resistance among EU business and civil society actors toward CBAM and where their views diverge on key design choices. Understanding these internal EU dynamics is crucial because the mechanism’s effectiveness and legitimacy will depend on the policy design that emerges from political compromises among these influential actors, especially as the proposal faces external resistance from trade partners.

The study situates CBAM within a predominantly economic and legal literature evaluating objectives, design trade-offs, administrative feasibility, environmental effectiveness, international legal constraints, and reactions of trade partners. Prior work examines the balance between addressing carbon leakage and competitiveness versus broader goals such as climate leadership and revenue generation (e.g., Al Khourdajie and Finus 2020; Böhringer et al. 2012, 2017; Branger and Quirion 2014; Fischer and Fox 2012; Fouré et al. 2016; Ghosh et al. 2012; Hecht and Peters 2019; Helm et al. 2012; Mehling and Ritz 2020; Moghaddam et al. 2013; Monjon and Quirion 2011; Pirlot 2017, 2022; Springmann 2013; Eicke et al. 2021; Lehne and Sartor 2020; Mehling et al. 2019; Morgan 2020). Drawing on Marcu et al. (2021) and related studies, the paper highlights key policy choice domains likely to generate disagreement: motivations and objectives; policy instrument type (ETS- or tax-based); geographic scope and exemptions; sectoral and product coverage; coverage of trade flows (imports and/or exports); emissions scope (direct and indirect); and methodologies for determining embedded emissions. These themes structure the analysis of consultation responses.

The study analyzes secondary data from the European Commission’s public consultation on CBAM conducted July 22–October 28, 2020, prior to the Commission’s official proposal on July 14, 2021. The consultation aimed to gather stakeholder input to inform policy development, assess policy options and impacts, and identify opportunities and challenges for CBAM. Quantitative component: From 617 total respondents, the authors selected EU-based inputs and focused on organizational respondents. The quantitative analysis includes business organizations (companies and business associations, n = 225) and civil society organizations (environmental NGOs, other NGOs, trade unions, consumer organizations, and research institutions, n = 51). Given ordered, non-normally distributed survey responses, the Mann-Whitney U test was used to assess differences between business and civil society distributions across items linked to salient CBAM design choices. Qualitative component: Open-ended submissions were purposively sampled to capture influential actors. Selection criteria included: (1) all large business associations (≥250 employees); (2) the five largest companies by revenue and the five largest by number of employees; and (3) all civil society organizations with ≥10 employees. From this list, those providing open-ended responses were included. Examples of included organizations: ArcelorMittal; Confederation of Danish Industry; Danish Agriculture and Food Council; Danish Chamber of Commerce; Engie; European Non-Ferrous Metals Association (Eurometaux); Federation of Austrian Industries; PwC; Repsol; Veolia; Carbon Market Watch; CEE Bankwatch Network; Climate Action Network Europe; European Environmental Bureau; European Federation of Building and Woodworkers; Federation of German Consumer Organizations; German NGO Forum on Environment and Development; IndustriALL Europe; Institute for European Environmental Policy; WWF European Policy Office. Content analysis was conducted to extract positions aligned with the same analytical categories as the survey. Analytical framework: A literature review identified the most salient CBAM design issues (per Marcu et al. 2021 and related literature). The survey items analyzed correspond to: motivations/objectives; policy instrument; geographic scope and accounting for origin-country policies; sectoral/product coverage; coverage of trade flows (imports/exports); emissions scope (direct/indirect); and determination of embedded emissions. Results emphasize items with statistically significant business–civil society disagreement; items without significant differences are also reported within themes, with embedded emissions treated in an appendix due to no significant disagreement.

- Overall, both business and civil society respondents within the EU express general support for introducing a CBAM. - Despite general support, there are pronounced divergences between business and civil society on the mechanism’s purpose and on several core design elements: • Allocation of free allowances under the EU ETS and their relationship to CBAM (e.g., whether and how free allocation should be phased out when CBAM is introduced). • Sectoral and product coverage (which sectors/subsectors should be included). • Geographic scope, including exemptions or differential treatment for third countries and how to account for climate policies/carbon costs in countries of origin. • Coverage of trade flows, notably whether to include export rebates in addition to imports. • Emissions scope, i.e., whether to include direct and/or indirect emissions. - Statistical testing (Mann-Whitney U) identified significant differences across multiple items within these themes; however, for the theme of determining embedded emissions (methodologies to calculate embodied emissions), no statistically significant disagreements were found between the two groups. - The paper underscores that CBAM’s effectiveness and durability will hinge on resolving these contested design questions through political compromise between business and civil society preferences.

The findings address the core question of where EU business and civil society converge and diverge on CBAM. While both constituencies broadly endorse the idea of a border adjustment to mitigate carbon leakage and competitiveness risks under a more ambitious EU ETS, they conflict on the mechanism’s objectives and implementation details. These internal EU disagreements are critical because they shape the political feasibility and ultimate design of CBAM as it moves through EU institutions and faces external scrutiny by trade partners. Divergences over free allocation, sectoral scope, country exemptions, export treatment, and emissions coverage suggest that policy compromises will be required, each with implications for administrative feasibility, environmental effectiveness, trade law compatibility, and international diplomacy. The absence of disagreement on embedded emissions methodologies indicates a potential area of technical consensus that could facilitate implementation. Overall, the results highlight that the strength and legitimacy of CBAM will depend on balancing stakeholder preferences to craft a coherent instrument aligned with its primary purpose of addressing carbon leakage while avoiding goal overload that could undermine effectiveness.

The study contributes empirical evidence on EU internal stakeholder positions regarding CBAM, showing broad support coupled with significant disagreements on key design choices. It demonstrates that the mechanism’s success will depend on EU institutions’ capacity to reconcile business and civil society preferences, particularly around phasing out EU ETS free allocation, determining sectoral and geographic coverage, addressing exports, and defining emissions scope. The analysis provides timely insights for ongoing negotiations. Potential future research includes tracking how these preferences are reflected in legislative compromises, and evaluating CBAM’s effectiveness and impacts after implementation.

- The data derive from a self-selected public consultation sample, which is not representative of EU business and civil society at large; results reflect the interests of actors motivated to participate. - Responses were submitted in reaction to the Inception Impact Assessment (March 2020); some views likely reflect earlier conceptualizations and may have evolved following the Commission’s July 14, 2021 proposal. - Some respondents (especially smaller entities) may have had limited background knowledge about CBAM compared to larger, more networked organizations. - The study focuses on EU-resident organizational respondents and excludes individual citizens and public administrations, limiting generalizability. - Effectiveness cannot be assessed prior to implementation; findings concern preconditions and stakeholder preferences rather than outcomes.