2. The EU CBAM and its justification under the Chapeau of Article XX GATT

The EU CBAM aims to tackle prospective carbon leakageFootnote ²⁹ by ensuring that products imported in the EU bear economic costs that are equivalent to the ones borne by EU producers under the EU Emission Trading System (ETS). The ETS is a cap-and-trade regime involving the purchase by EU firms of allowances to cover their greenhouse gas (GHG) emissions.Footnote ³⁰ The CBAM requires importers of covered goods in carbon-intensive and trade-exposed sectors to purchase and surrender CBAM certificates. The scheme is designed so as to (partially) mirror the operation of the ETS. First, importers are charged for the verified GHG emissions embedded in the imported products; these vary on the basis of the carbon intensity of the route of production of the goods.Footnote ³¹ Second, the price of the CBAM certificates is linked to the fluctuating auctioning price of ETS allowances; it thus approximates the EU ‘explicit’ carbon price.Footnote ³² Any ‘explicit’ carbon price paid by the imported products in their country of origin is taken into account in the calculations and waived.Footnote ³³

The CBAM contravenes the GATT cornerstone Most Favoured Nation Treatment (Article I:1 GATT) and National Treatment (Article III:4 GATT) obligations.Footnote ³⁴ In a prospective WTO law dispute, the EU will thus seek to justify the scheme under Article XX GATT (General Exceptions). It is rather uncontroversial that the CBAM would be provisionally justifiable under subparagraph (g) of this Article; presumably, the EU would also invoke subparagraphs (a) and (b).Footnote ³⁵ Whether the scheme could be justified under the Chapeau of Article XX, by contrast, is far from clear.Footnote ³⁶ As is well known, the Chapeau stipulates that measures shall not be applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade. Considerations surrounding the role and value of CBDR-RC within the WTO law system would arise in the context of the Chapeau analysis. Accordingly, this section focuses on two circumscribed questions. First, it assesses whether the Chapeau in its own right may be interpreted in such a way as to target the CBAM’s one-size-fits-all approach. Second, it turns to the question whether an interpretation of the Chapeau in light of the principle of CBDR-RC may yield the same result. Such a finding may warrant the introduction of a system of differentiated border adjustments, and/or the provision of specific CBAM exemptions.

As noted in the past, an assessment under the Chapeau of Article XX GATT prevents protectionist or discriminatory abuse of the policy space afforded by the subparagraph exceptions.Footnote ³⁷ The Chapeau draws a line between any justifiable barriers to trade and market access associated with the pursuit of legitimate (e.g. environmental) policy goals, and unjustifiable protective (National Treatment-type) or discriminatory (Most Favoured Nation Treatment-type) application.Footnote ³⁸ The WTO dispute settlement organs have interpreted and applied the elusive Chapeau by identifying a number of ‘indicators’ of compliance with its requirements. All ‘indicators’ capture aspects in the practical application of a measure that are irreconcilable with good faith, suggest abusive recourse to the ‘limited and conditional’ policy exceptions of Article XX GATT, and may unjustifiably afford economic protection to domestic products or result in country-based discrimination.Footnote ³⁹

In US – Shrimp, the Appellate Body (AB) famously found that ‘discrimination results not only when countries in which the same conditions prevail are differently treated, but also when the application of the measure at issue does not allow for any inquiry into the appropriateness of the regulatory program for the conditions prevailing in those exporting countries’.Footnote ⁴⁰ The conditions that are relevantly the same for the purposes of a Chapeau assessment are normally identified by reference to the measure’s declared (e.g. environmental) policy goal. US – Shrimp broadened the scope of ‘arbitrary’ or ‘unjustifiable’ discrimination to encompass a failure to account for the other conditions prevailing in differently situated countries. Drawing on this reading of the Chapeau, the WTO dispute settlement organs have addressed questions surrounding the treatment of countries where the same relevant (e.g. environmental) conditions prevail, but other non-relevant (e.g. development, socio-economic, implementation) prevailing conditions differ. They have conducted this analysis by fleshing out two further ‘indicators’ of compliance with the Chapeau: coercion, and situational discrimination. These ‘indicators’ deserve a close look. The key question is whether they may be applied in such a way as to suggest that the CBAM arrangements should differentiate the economic treatment of products originating from countries with different responsibilities for GHG emissions and different capabilities to decarbonize.

An analysis of the findings in previous WTO law disputes does not lend support to this construction. The interpretation and application of coercion is irrelevant in the context of a CBDR-RC-driven examination. As fleshed out in US – Shrimp, coercion focuses on the question of whether unilateral standards enable exporting Members to pursue the same (e.g. decarbonization) goals via comparably effective regulatory means.Footnote ⁴¹ It captures the extent to which the measures under challenge coerce exporting Members into adopting the same regulatory strategies and arrangements employed by the regulating Member. This ‘indicator’ thus mandates a degree of regulatory flexibility; it does not require the adoption of differentiated arrangements with variable levels of (e.g. environmental) stringency, as would be the case with a system of differentiated carbon border adjustments or exemptions.Footnote ⁴²

At a close inspection, similar considerations apply to situational discrimination. In EC – Seal Products, the treatment of differently situated countries where the same conditions prevail came into play. The AB found that the Inuit Communities exception arbitrarily and unjustifiably discriminated between countries with the same prevailing conditions in terms of presence of Inuit Communities, but where conditions pertaining to the levels of development of Inuit Communities differed.Footnote ⁴³ Nonetheless, the AB did not go as far as suggesting that the measures should have differentiated the treatment of different Inuit Communities. Rather, it suggested that the EU should have taken the development conditions prevailing in different Inuit Communities into due consideration when designing and applying the exception; this would have enabled the EU to treat the different communities in the same way in practice.Footnote ⁴⁴ The findings in this dispute are further narrowed down by clear breaches of good faith on the part of the EU. The EU institutions had invoked the socio-economic development of indigenous communities as the Inuit Communities exception’s policy goal; nonetheless, the exception had been designed and applied in such a way that only Greenlandic Inuit could take advantage of it. The failure by the EU institutions to take the development conditions prevailing in different Inuit Communities into account thus revealed breaches of good faith and undermined the exception’s alleged policy goal.Footnote ⁴⁵

None of these considerations apply to an analysis of the CBAM. On the contrary, exemptions or differentiated carbon border adjustments involving the application of higher or lower carbon prices to products originating from different Members would run counter to the CBAM’s environmental goals and undermine its effectiveness. Differentiated regulatory arrangements along these lines would promote carbon leakage in developing and least developed countries, and lock them in carbon-intensive production pathways.Footnote ⁴⁶ From a WTO law perspective, this has two implications. First, it makes CBDR-RC-informed differentiated arrangements an easy target of the ‘rational relationship’ test. Developed in Brazil – Retreaded Tyres and later applied in EC – Seal Products, this test captures any aspects in the application of a measure that undermine its declared policy goal.Footnote ⁴⁷ Second, it excludes any bad faith on the part of the EU in the context of a potential analysis of situational discrimination. As the dispute settlement organs clarified in EC – Tariff Preferences, regulating Members may choose to differentiate the treatment of countries where different non-relevant conditions prevail as long as they are treating all similarly situated countries in the same way.Footnote ⁴⁸ However, they are not under an obligation to do so.

As the preceding examination has demonstrated, the Chapeau in its own right does not target the EU institutions’ failure to differentiate the economic treatment of products manufactured in developing and/or least developed countries under the CBAM. Nor does it require the provision of any exemptions. The final and crucial question to tackle is whether an interpretation of the Chapeau in light of CBDR-RC could produce different results. The analysis builds on the assumption that the challenging Parties would invoke CBDR-RC as an interpretative element in the context of the Chapeau assessment.

Questions surrounding the interpretation of WTO law provisions in light of international environmental law were tackled in some detail in a handful of disputes brought under the WTO Agreement on Sanitary and Phytosanitary Measures (SPS Agreement). In these disputes, the EU invoked the precautionary principle as an interpretative tool in the context of the application of different articles of the SPS Agreement. In EC – Biotech, the EU went beyond its previous claims that the principle qualifies as a customary or a general principle of international law. Rather, it invoked the principle as expressly codified in two international treaties: the 1992 Convention on Biological Diversity, and the 2000 Cartagena Protocol on Biosafety to the Convention on Biological Diversity.Footnote ⁴⁹

Drawing on Article 3.2 of the WTO Dispute Settlement Understanding (DSU), the Panel noted that the WTO Agreements must be interpreted in accordance with customary rules of interpretation of public international law.Footnote ⁵⁰ The Panel found that Article 31(3)(c) of the Vienna Convention on the Law of Treaties was sufficiently broad as to encompass the two Conventions invoked by the EU, as well as customary and general principles of international law.Footnote ⁵¹ This Article refers to ‘relevant rules of international law applicable in the relations between the Parties’, to be taken into account together with context for the purposes of interpreting a treaty. The WTO Panel did not take position in respect of the status of the precautionary principle as a customary or a general principle of international law. Turning to the interpretation of the SPS Agreement in light of the Convention on Biological Diversity and Cartagena Protocol, it drew on Article 2(g) of the Vienna Convention to find that the relevant treaty provisions were not applicable in the relations between the parties to the dispute. The reason was that the US had not ratified the Convention, and Canada and Argentina had not ratified the Protocol (which the US had not even signed).

The question whether CBDR-RC may qualify as a customary or a general principle of international environmental law has remained underexplored. Scholarly analyses in the field of climate change law suggest that this is not the case.Footnote ⁵² For the purposes of the present analysis, a negative answer would not dispose of the question whether the Chapeau may be interpreted in light of CBDR-RC. The reason is that the principle of CBDR-RC is enshrined in the UNFCCC and Paris Agreement.Footnote ⁵³ Both treaties have near-universal application; by implication, their provisions would be applicable in the relations between any parties to a dispute brought under WTO law.

This consideration begs the question whether an analysis of situational discrimination in light of CBDR-RC could result in a finding that the CBAM’s one-size-fits-all approach arbitrarily and unjustifiably discriminates against differently situated developing and/or least developed countries. In a hypothetical WTO law dispute, these countries could invoke their different prevailing conditions in terms of (historical and/or present) responsibilities for GHG emissions and (present) capabilities to decarbonize. Would this construction result in a finding that the EU should apply a system of differentiated carbon border adjustments, or provide specific exemptions? This question calls for an in-depth analysis of the CBDR-RC principle. The next sections address this point.

3. CBDR-RC and its normative pull towards differentiation: Insights from climate change law and litigation

As thoroughly discussed in the climate change law literature, CBDR-RC finds its normative foundations in substantive equality, corrective justice, and distributional justice.Footnote ⁵⁴ Promoting substantive equality implies recourse to non-reciprocal arrangements,Footnote ⁵⁵ in recognition of ‘the limits of a system based on a fiction of legal equality between states’.Footnote ⁵⁶ The acknowledgement that states have common but differentiated responsibilities in the fight against climate change, as an expression of corrective justice, captures the different extent to which state Parties have contributed to the climate crisis. References to the parties’ respective capabilities point to the question of distributional justice and put the accent on diverging state capacities to promote decarbonization. This different perspective shifts the focus away from states’ (past or present) contribution to environmental degradation, redirecting it towards questions surrounding the distribution of the costs associated with the net-zero transition.

Despite its normative appeal, this ‘umbrella’ principle fails to provide clear yardsticks for the allocation and distribution of regulatory burdens in the fight against climate change.Footnote ⁵⁷ Normative contestation surrounding the interpretation of relevant ‘responsibilities’ and ‘capabilities’ has plagued the debate on CBDR-RC since the very first references to the principle. Principle 7 of the 1992 Rio Declaration made reference to ‘different [state] contributions to global environmental degradation’, ‘common but differentiated responsibilities’, and the acknowledgment by developed countries of their responsibility ‘in the international pursuit of sustainable development’. As is well known, the US communicated a statement to reserve its interpretation of CBDR; the statement expressly clarified that the US framed the notion of ‘responsibilities’ in terms of a ‘special leadership role’ that developed countries ought to take due to their higher levels of socio-economic development.Footnote ⁵⁸ Similar concerns arose in respect of the interpretation of the ‘two-limb’ version of CBDR-RC, enshrined in the UNFCCC.Footnote ⁵⁹

Decades later, the interpretation of the principle is as normatively contested as ever. Differentiated responsibilities may be measured against the benchmark of past, present, or expected future levels of GHG emissions. Capabilities may be assessed through the lens of indicators as diverse as GDP, GDP per capita, or per capita GHG emissions.Footnote ⁶⁰ The question of how to balance the two limbs opens up further normative conundra.

Moving from the conceptual level of analysis to an examination of the application of CBDR-RC, operationalizing the principle and translating its normative underpinnings into practice has proven extremely difficult for the parties to the UNFCCC regime.Footnote ⁶¹ As is well known, the UNFCCC and the Kyoto Protocol relied on the rudimentary UNFCCC three-partite Annex system to single out developed countries, imposing specific climate change mitigation obligations on Annex I (developed) countries and capacity-building and finance and technology transfer commitments on Annex II (developed minus post-Soviet Union) countries.Footnote ⁶² The Parties took membership to the OECD as a proxy for ‘developed country’ status. This was a clear manifestation of lack of multilateral agreement surrounding the identification of relevant ‘responsibilities’, ‘capabilities’, and any resulting climate change mitigation commitments. Persistent and intractable normative disagreements surrounding these criteria resurfaced pending the negotiations of the Paris Agreement. At the time, developed country parties adamantly pursued the goal of broadening the scope of application of the new Agreement’s climate change mitigation obligations beyond Annex I parties. This produced two results.

First, it resulted in a shift away from the Kyoto Protocol’s top-down regulatory architecture and a turn towards bottom-up arrangements.Footnote ⁶³ The Paris Agreement requires each party to prepare, communicate and maintain NDCs;Footnote ⁶⁴ as is well known, NDCs incorporate self-determined climate change mitigation pledges. The parties shall pursue domestic mitigation measures with the aim of achieving the objectives of such contributions.Footnote ⁶⁵ The language of this Article signals an obligation of conduct, whereby state parties shall exercise due diligence and act in good faith with a view to meeting the targets that they have set for themselves in their NDCs. In a similar vein, the parties’ collective obligation to pursue the Paris Agreement’s temperature goal is framed as an obligation of conduct. Article 3 requires all state parties to act in good faith in the preparation and communication of ambitious NDCs, with the view to holding the increase in the global average temperature to well below 2 (and potentially 1.5) degree Celsius (‘achieving the purpose of this Agreement …’).Footnote ⁶⁶ The global stocktake procedure laid out in Article 14 provides an opportunity for states to assess their collective progress, informing ‘Parties in updating and enhancing [their actions] in a nationally determined manner’ (emphasis added). This model strikes the starkest contrast with the top-down approach of the Kyoto Protocol; the latter built on a system of internationally negotiated (as opposed to nationally determined) emission reduction targets, and incorporated specific obligations of result.

Second, the principle of CBDR-RC is arguably differently operationalized in the context of the Paris Agreement’s NDCs system and bottom-up turn. This aspect is the object of closer examination in the next section. CBDR-RC as enshrined in the UNFCCC and Kyoto Protocol reflected a clear and unequivocal normative pull towards differentiated climate change mitigation obligations for developed vis-à-vis developing and least developed countries; this found direct expression in the afore mentioned UNFCCC Annex system.Footnote ⁶⁷ This understanding of the principle, deprived of any references to the now obsolete Annex system, survives in a circumscribed number of climate change mitigation provisions in the Paris Agreement. Can these specific provisions offer any normative underpinnings for the identification of differentiated climate change mitigation obligations, and any clear yardsticks for the allocation and distribution of regulatory burdens in the fight against climate change? Could they help advance an interpretation of the Chapeau that would warrant a system of differentiated carbon border adjustments, or CBAM exemptions? The remaining part of this section tackles these questions, anchoring the analysis to relevant provisions in the Paris Agreement.

Article 4(4) stipulates that developed country parties should continue taking the lead by undertaking economy-wide absolute emission reduction targets. Developing country parties should continue enhancing their mitigation efforts. As consistently reiterated in the literature, the use of the verb ‘should’ signposts an aspirational statement rather than a mandatory obligation.Footnote ⁶⁸ The Preamble to the Agreement recognizes the specific needs and special circumstances of developing country parties, with emphasis on those countries that are particularly vulnerable to the adverse effects of climate change. Nonetheless, unlike the following Preamble reference to the needs and situations of least developed countries,Footnote ⁶⁹ it falls short of clarifying the practical implications of this acknowledgment. The specific needs and special circumstances of developing countries could potentially influence commitments in the areas of climate change mitigation, adaptation, finance and technology transfer, or capacity-building: the broad scope of this Preamble reference thus de-emphasizes the relevance of differentiation in the specific context of GHG emission reduction commitments. Article 4(6) provides that ‘least developed countries and small island developing states may prepare and communicate strategies, plans and actions for low [GHG] emissions development reflecting their special circumstances’. This provision recognizes the special status of this group of countries, enabling an additional degree of self-determination in the context of their NDCs. Presumably, it may justify the adoption of less stringent mitigation commitments.

The final provision under examination in this section is Article 4(3). At a first glance, this Article may appear to offer some guidance; at a closer inspection, however, this argument fails. The Article stipulates that ‘each Party’s successive [NDCs] will represent a progression beyond the Party’s then current [NDCs] and reflect its highest possible ambition, reflecting its common but differentiated responsibilities and respective capabilities, in the light of different national circumstances’.

As widely acknowledged, the use of ‘will’ implies the absence of an obligation.Footnote ⁷⁰ Nor are there any textual elements to infer an obligation of conduct. Unlike Articles 3 and 4(2),Footnote ⁷¹ Article 4(3) does not provide that the parties ‘shall’ or ‘are to’ adopt successive NDCs ‘with the view to’ or ‘with the aim of’ ensuring that they represent a progression and reflect the Parties’ highest possible ambition. This suggests that the clause rather enshrines a standard of conduct for the parties to adhere to.Footnote ⁷²

This expectation of ‘progression’ and ‘highest possible ambition’ in the Article 4(3) clause adds further qualifiers beyond the normatively contested notion that self-determined NDCs should reflect the parties’ own ‘CBDR-RC in the light of different national circumstances’. The ensuing question is whether this standard of conduct could provide any specific normative underpinnings. The notion of ‘progression’ in successive NDCs meets these requirements, thanks to its sufficient specificity. The opposite applies to the notion of ‘highest possible ambition reflecting a Party’s common but differentiated responsibilities and respective capabilities, in the light of different national circumstances’: enforcing this standard brings us back to the question of a party’s level of ambition as appreciated on the basis of its CBDR-RC in the light of different national circumstances. This evaluation would yet again require a determination of the parties’ specific responsibilities and capabilities and a normatively informed balancing of the two limbs of the principle, with a view to allocating and distributing regulatory burdens. Whether in the context of designing a system of differentiated carbon border adjustments or at a more general level of assessment, this ultimately pushes us back to the conceptual level of analysis and to the normative conundrum of CBDR-RC.Footnote ⁷³

An analysis of climate litigation lends further support to this objection. Several cases have engaged with questions surrounding the requisite levels of climate change mitigation for parties to the Paris Agreement.Footnote ⁷⁴ It is in this context that the notion of ‘national fair shares’ originally developed. National fair share ranges offer specific quantitative benchmarks to scrutinize the stringency and ambition of the different NDCs of different state parties.Footnote ⁷⁵ They are based, amongst other indicators, on an evaluation of the parties’ differentiated responsibilities and respective capabilities.

In the Urgenda judgment, as is well known, the Supreme Court of the Netherlands confirmed the order for the Dutch state to reduce GHG emissions by the end of 2020 by at least 25% compared to 1990. The Supreme Court held that the 25% lower limit of the 25% to 40% IPCC emission reduction target for Annex I countries constituted the minimum fair share of contribution for the Netherlands. To confirm this conclusion, the Court drew on scientific and international consensus on the 25% to 40% target and on an analysis of the specific responsibilities and capabilities of the Netherlands.Footnote ⁷⁶ This consensus was taken into account to interpret and apply the state’s obligations under Articles 2 (right to life) and 8 (right to respect for private and family life) of the European Convention of Human Rights (ECHR) to take suitable measures to protect the residents of the Netherlands from climate change.Footnote ⁷⁷ The state’s objections regarding the non-binding nature of the target,Footnote ⁷⁸ its collective application,Footnote ⁷⁹ and national discretion to pursue different decarbonization trajectories under alternative emission reduction pathwaysFootnote ⁸⁰ were to no avail.

The academic objections raised against the identification of a minimum fair share in Urgenda mostly focus on the courts’ analysis of relevant scientific data.Footnote ⁸¹ In Neubauer, similar considerations prompted the German Federal Constitutional Court to exercise a degree of self-restraint in its analysis of German climate change mitigation commitments.Footnote ⁸² Questions surrounding scientific uncertainty and the existence of alternative emission reduction pathways cast serious doubts on the legal foundations for the judicial determination of national fair shares. The absence of robust criteria to assess the parties’ differentiated responsibilities and respective capabilities, however, is even more problematic to calculate national fair shares in the global emissions budget.Footnote ⁸³ Different datasets, methods and allocation criteria have produced very different targets and measurements of national fair shares.Footnote ⁸⁴ References to international environmental law principles, including CBDR-RC, also underpin different qualitative models to narrow down the fair share ranges.Footnote ⁸⁵

In Verein KlimaSeniorinnen Schweiz, the European Court of Human Rights (ECtHR) was faced with a set of claims brought against Switzerland. These were based inter alia on the insufficiency of the Swiss commitments vis-à-vis its national fair share, and vis-à-vis the Article 4.3 standard.Footnote ⁸⁶ The ECtHR refrained from making any findings on the compatibility of Swiss climate change mitigation policy vis-à-vis the notion of national fair shares. It expressly noted that global goals to limit temperature increases ‘cannot of themselves suffice as a criterion for any assessment of Convention compliance … [as] each individual state is called upon to define its own adequate pathway for reaching carbon neutrality …’.Footnote ⁸⁷ Rather than as a ‘sword’, the Court employed CBDR-RC as a ‘shield’ to reject the state’s argument on causality.Footnote ⁸⁸

As the preceding analysis has demonstrated, normative contestation surrounding the contours of CBDR-RC undermines the legal foundations of the concept of quantitative national fair shares. If we transpose the findings of this part of the analysis to an examination of the EU CBAM’s one-size-fits-all approach, we reach the same conclusions. To the extent that it is reflected in the Article 4.3 clause of the Paris Agreement, CBDR-RC could potentially help to advance an interpretation of the Chapeau that may warrant differentiated CBAM economic treatment for products manufactured in different countries. However, it fails to offer any clear criteria to design and implement a system of differentiated carbon border adjustments. The process to allocate and distribute economic burdens by establishing a system of lower carbon prices for products originating from different non-developed country members would meet the same normative and practical objections raised in the debate on national fair shares. This problematic aspect adds up to the environmental shortcomings of differentiated carbon border adjustments, and to the technical difficulties associated with levying different charges on products originating from different countries.

A system of exemptions for least developed countries would find a more solid legal foundation in the Paris Agreement arrangements. As argued in the literature, the Preamble to the Agreement and Article 4(6) expressly recognize the special status of this group of countries.Footnote ⁸⁹ Further, it would be easier to design and implement. Nonetheless, this approach would still frustrate the environmental rationale of the CBAM: it would promote carbon leakage in exempted least developed countries, and fail to incentivise industrial decarbonization.

As illustrated throughout this section, both options would be associated with problematic aspects. Nor should we take for granted that CBDR-RC, as operationalized under the Paris Agreement, ought to be interpreted in such a way as to warrant ‘hard’ differentiation under the CBAM.

4. From differentiation to self-differentiation under the Paris Agreement arrangements?

This section follows an alternative analytical pathway, offering a different reading. It engages with the separate question of whether CBDR-RC ‘as we knew it’ prior to 2015 survives at all in the specific context of the Paris Agreement’s climate change mitigation obligations.Footnote ⁹⁰

Throughout the Paris Agreement negotiations, as explained in the previous section, the desire to broaden the scope of application of climate change mitigation obligations beyond developed country (Annex I) parties coalesced with normative contestation surrounding the allocation of relevant commitments. This resulted in the adoption of a distinctive bottom-up approach. The self-determined nature of NDCs, the collective obligation of conduct for state parties to endeavour to meet the Agreement’s temperature targets, and the aggregate assessment of the state parties’ implementation of NDCs under the global stocktake procedure ultimately feed into a logical loop.

Questions surrounding the distinctive regulatory architecture of the Paris Agreement and normative contestation on burden-sharing are thus structurally intertwined. Under this reading, the turn to a bottom-up approach has replaced the original CBDR-RC normative pull towards differentiated decarbonization obligations for developed vis-à-vis developing and least developed countries, entrenching a paradigm of self-differentiation in the context of the Agreement’s climate change mitigation obligations. This change arguably finds expression in the reformulation of the principle in terms of ‘common but differentiated responsibilities and respective capabilities, in the light of different national circumstances’.Footnote ⁹¹ From the Preamble to the Agreement to Articles 2(2), 4(3) and 4(19), all mandatory provisions on climate change mitigation and NDCs incorporate this specific formulation of the principle.

In the Advisory Opinion on the Obligations of States in respect of Climate Change, the ICJ articulated its view that the additional phrase ‘in the light of different national circumstances’ does not ‘change the core of the principle of [CBDR-RC]; rather, it adds nuance to the principle by recognising that the status of a State as developed or developing is not static. It depends on an assessment of the current circumstances of the State concerned’.Footnote ⁹² Whilst these statements would seem to exclude an alteration of the normative core of CBDR-RC under the Paris Agreement, a more careful reading of the Opinion ultimately suggests otherwise. Far from uncovering the clear tension between ‘self-differentiation’ (CBDR-RC in the light of different national circumstances) and the principle’s original normative pull towards differentiation in GHG emission reduction obligations (CBDR-RC), the Opinion focuses and lays all emphasis on the margins of discretion in the exercise of ‘self-differentiation’.Footnote ⁹³ In this sense, the dichotomy at the heart of the analysis is the one of ‘bounded self-differentiation’ versus ‘unconstrained’ or ‘unfettered discretion in self-differentiation’. As briefly noted above, this aligns with the Opinion’s direct focus on the standard of due diligence required from state parties, as distinguished from the different question of the parties’ common but differentiated responsibilities and respective capabilities in the light of different national circumstances in the context of global climate change mitigation action.Footnote ⁹⁴

This argument regarding a shift away from differentiation between developed versus non-developed countries and turn to (bounded) ‘self-differentiation’ is further substantiated by a comparison with the Paris Agreement provisions that do not relate to climate change mitigation. The Agreement provisions on adaptation, finance, support and capacity-building, technology transfer, and on the enhanced transparency framework all draw an express distinction between the treatment of developed, developing, and least developed countries.Footnote ⁹⁵ The Agreement overcomes the rigidities of this trichotomous categorization through some emphasis on the diverging capabilities of developing countries; this nuanced approach is reflected in Article 9(2) on finance, and 13(1) and 15(2) on the enhanced transparency framework. For the present analytical purposes, however, the key point is a different one: these provisions incorporate clear and express elements of differentiation, and resonate with the tenets of CBDR-RC ‘as we knew it’ before 2015. This strikes a stark contrast with the Agreement’s climate change mitigation provisions.

This analysis of the Paris Agreement’s shift towards (‘bounded’) self-differentiation undermines the case for an interpretation of the Chapeau that would warrant a system of differentiated carbon border adjustments, and weakens the case for exemptions. At the same time, this interpretative approach opens up a different question for discussion: is the CBAM’s one-size-fits-all approach irreconcilable with CBDR-RC in the light of different national circumstances, and with the Paris Agreement’s novel emphasis on (‘bounded’) self-differentiation? Are we navigating uncharted waters? A more in-depth examination suggests that the CBAM’s design and application do not raise any such issues. Tackling this question, however, prompts us to zoom out of the preceding enquiry.

The question of whether the CBAM’s design is compatible with CBDR-RC in the light of different national circumstances ultimately boils down to the question of the scheme’s compatibility with the Paris Agreement’s bottom-up regulatory architecture. From this perspective, the point of contention is whether the EU CBAM may apply to imported products so as to raise the Paris Agreement’s bar. These considerations trigger a set of questions surrounding the relationship between the UN multilateral climate change law system, and unilateral trade-related environmental measures.

The international climate change law regime does not explicitly or implicitly prohibit recourse to unilateral measures. Principle 11 of the Rio Declaration provides that standards, management objectives and priorities should reflect the environmental and developmental context to which they apply, and acknowledges that standards applied by some countries may be inappropriate and of unwarranted economic and social cost to other countries. Principle 12 of the Rio Declaration concedes that unilateral action to deal with environmental challenges outside the jurisdiction of the importing country should be avoided. It further stipulates that environmental measures addressing transboundary or global environmental problems should as far as possible be based on an international consensus. The hortatory language employed in these statements signposts aspirational standards of conduct, as opposed to mandatory obligations.

More importantly, the second sentence of Principle 12 echoes the language of the Chapeau of Article XX GATT while falling short of laying out a mandatory obligation: it thus provides that ‘trade policy measures for environmental purposes should not constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade’ (emphasis added). The very same language is employed in Article 3(5) of the UNFCCC, on ‘measures taken to combat climate change, including unilateral ones’, as cross-referenced in Article 2(3) of the Kyoto Protocol. Article 3(5) UNFCCC on trade-related environmental unilateralism has been restated in the final Decision of COP28, despite attempts by the BASIC countries to have a different approach endorsed within the Subsidiary Body for Scientific and Technological Advice.Footnote ⁹⁶ In 2025, it was further restated in the COP30 Mutirão Decision.Footnote ⁹⁷

These considerations suggest that the UN multilateral climate change law regime condones trade-related environmental unilateralism in so far as the relevant measures do not overstep the boundaries established by the trade law system. These boundaries are primarily demarcated by the Chapeau of Article XX GATT; a self-standing scrutiny of arbitrary and unjustifiable protective or discriminatory application under the Chapeau of Article XX, as already seen in Section 2, does not imply any obligation to set in place exemptions or establish differentiated arrangements with variable levels of environmental stringency. On these grounds, as already illustrated, it does not target the CBAM’s one-size-fits-all approach.

Nor does the (alleged) implied jurisdictional limitation of Article XX GATT pose any constraints to the exercise of trade-related environmental leverage via the CBAM. As is well known, the WTO dispute settlement organs have failed to address this matter in a conclusive manner.Footnote ⁹⁸ Nonetheless, they have softened their analysis of a ‘sufficient nexus’ between the regulating member and regulated activities throughout the years.Footnote ⁹⁹ The dispute settlement organs’ interpretative approach militates in favour of a finding of a ‘sufficient nexus’ between the EU and the activities regulated under the EU CBAM. First, the CBAM aims to prevent the relocation of carbon-intensive EU production to lower environmental ambition countries, and the substitution of domestic products with more carbon-intensive and cheaper imports (carbon leakage). Second, it aims to reduce the EU import-related carbon footprint by increasing the final price of carbon-intensive products. Third, it aims to tackle global climate change by leveraging third countries and market actors operating in different jurisdictions. All of these policy goals allow for the identification of a ‘sufficient nexus’ with the EU.

This analysis settles the question of the CBAM’s lack of differentiation in the economic treatment of products; the CBAM’s arrangements are not incompatible with a reading of the Chapeau informed by CBDR-RC in the light of different national circumstances. Whilst the CBAM may fall foul of the Chapeau requirements, this would not occur for the scheme’s lack of differentiated arrangements and/or exemptions; rather, the CBAM arrangements would most likely be targeted for their coercive effects. By design and by application, the CBAM indirectly leverages third countries into setting in place a carbon pricing system.Footnote ¹⁰⁰ The EU institutions have expressly acknowledged this policy goal in the Preamble to the CBAM Regulation.Footnote ¹⁰¹ This element represents an additional source of friction with the multilateral climate change law system; in the absence of a global carbon price, the UNFCCC regime embraces a policy-neutral approach and does not favour recourse to any particular (regulatory or market-based) decarbonization models.Footnote ¹⁰² Opportunely, as noted in the literature, the coercive (carbon pricing-oriented) features in the design and application of the CBAM are highly likely to qualify as a form of arbitrary and unjustifiable discrimination under the Chapeau of Article XX GATT.Footnote ¹⁰³ This element testifies once again to the crucial role played by the Chapeau: the UN multilateral climate change law regime condones trade-related environmental unilateralism in so far as the relevant measures do not overstep the boundaries established by the trade law system,Footnote ¹⁰⁴ and the Chapeau of Article XX GATT effectively polices these boundaries.

As the preceding analysis has illustrated in some detail, an interpretation of the Chapeau of Article XX in light of CBDR-RC does not warrant a finding that the CBAM’s one-size-fits-all arrangements are unjustifiable. Nor is it likely to translate into a finding that the EU should set in place a system of differentiated border adjustments. As detailed in Section 3, the argument in favour of exemptions for least developed countries lays on more solid foundations. Nonetheless, a system of exemptions would still produce normatively undesirable detrimental environmental effects. It is against this overall backdrop that the following section lays out a different interpretative approach.

5. Towards a capabilities-centred interpretation

If analysed through the lens of CBDR-RC, the argument for CBAM differentiation in the economic treatment of imported products originating from different groups of countries lays emphasis on developing and least developed countries’ marginal past responsibilities for GHG emissions and/or limited present capabilities to decarbonize. The case for the application of a system of differentiated carbon border adjustments and/or specific exemptions thus rests on paradigms of corrective justice. This interpretative approach embraces a static perspective, and presupposes a close focus on the development and socio-economic conditions prevailing in differently situated developing and least developed countries.

The nuanced examination carried out throughout the previous sections does not support a CBDR-RC-informed interpretation of the Chapeau that would warrant these forms of differentiation under the CBAM. This part of the analysis, however, does not dispose of different interpretative approaches to the principle of CBDR-RC. Nor does it take into consideration different interpretations of the Chapeau requirements in light of CBDR-RC. Building on this acknowledgment, this final substantive section advances a normatively informed interpretation of the Chapeau of Article XX GATT in light of CBDR-RC.

The foundations of this narrower interpretative approach lie in paradigms of distributional justice. Assessing the question of differentiation from this vantage point de-emphasizes the limited responsibilities of developing and least developed countries for past GHG emissions, and their present relevance to the determination of burden-sharing criteria. The question of which countries should contribute less to tackle the climate crisis is reformulated by focusing on the distribution of the costs associated with equal environmental contributions. If analysed through the lens of the CBDR-RC principle, this approach builds on a dynamic and forward-looking focus on prospective capabilities.Footnote ¹⁰⁵ It emphasizes the responsibility for developed countries to help build capabilities in developing and least developed countries, stemming from greater economic and technical capabilities that developed countries have acquired through their past responsibility for GHG emissions and environmental degradation.Footnote ¹⁰⁶

Rather than putting the accent on the social and economic conditions of different groups of countries, this reading also presupposes a more circumscribed focus on regulatory implementation, monitoring and enforcement conditions. This analytical dimension is connected to but clearly distinguished from the broader question of the development and socio-economic conditions prevailing in developing and least developed countries.Footnote ¹⁰⁷ This narrower interpretation of the relevant prevailing conditions is the corollary of a direct focus on prospective capabilities. Finally, and crucially for the present analytical purposes, this normatively informed reading of CBDR-RC finds expression in arguments in favour of ‘softer’ forms of differentiation.

A Chapeau assessment of the CBAM arrangements conducted in light of this narrower capabilities-centred approach reveals several shortcomings in the design and application of the scheme. A capabilities-centred interpretative approach first and foremost presupposes that regulating members should provide tailored assistance and support capacity-building in developing and least developed countries. Regrettably, the CBAM revenues will be destined to European producers in CBAM sectors and other European projects.Footnote ¹⁰⁸ A mandatory commitment for the EU to proportionally redistribute the CBAM revenues to exporting developing and least developed countries would play a pivotal role in supporting the net-zero transition in these jurisdictions.Footnote ¹⁰⁹ Not only would these financial transfers help to accelerate decarbonization at the transnational level; they would also mitigate trade diversion risks, preventing carbon-intensive exports from being diverted to low environmental ambition countries that have no carbon border measures in place.

It seems difficult to envisage a finding along these lines under a Chapeau assessment. However, a WTO Panel could make a similar finding in respect of the implementation of the CBAM’s onerous monitoring, reporting and verification (MRV) rules;Footnote ¹¹⁰ a Panel could find that the EU should provide ad hoc financial or capacity-building assistance to support developing and least developed country stakeholders in their application of the rules. The CBAM’s complex MRV rules are employed to calculate the direct emissions embedded in imported goods, and are associated with considerable economic costs and regulatory burdens.Footnote ¹¹¹ Their application is particularly burdensome for small, medium and micro-enterprises operating in developing and least developed countries that have not set a carbon pricing or GHG emission reporting system in place. In EC – Seal Products, the AB found that the EU had failed to make comparable efforts to facilitate the access of Canadian and Greenlandic Inuit to the Inuit Communities exception. These findings related to situational discrimination at the implementation rather than the regulatory design stage; the EU should have applied the regulations in such a way as to treat different countries in the same way in practice.Footnote ¹¹² Likewise, a Panel could make a finding that the EU should provide support to differently situated developing and least developed countries to facilitate the application of the CBAM’s MRV rules.Footnote ¹¹³ As already seen in respect of revenue redistribution, this solution would enhance rather than compromise the environmental effectiveness of the CBAM. It would tackle trade diversion risks, build capacity, and facilitate the local monitoring and enforcement of environmental standards.

Relatedly, a Panel could even go so far as to find that different timelines and transitional arrangements are warranted in the CBAM application to small, medium and micro-enterprises based in non-developed countries. Yet again, these regulatory adjustments would draw on the notion of situational discrimination at the regulatory implementation stage.Footnote ¹¹⁴

Finally, a Panel may assess whether the EU has duly engaged with differently situated developing and least developed countries prior to adopting the CBAM’s MRV rules. This would be necessary to account for these countries’ different capability levels and prevailing regulatory implementation conditions. The CBAM’s MRV rules mirror the rules applied to EU installations under the EU ETS; this is problematic. Drawing on US – GasolineFootnote ¹¹⁵ and US – Shrimp,Footnote ¹¹⁶ a Panel may find that the EU should have engaged in good faith with differently situated developing and least developed countries with a view to identifying less discriminatory MRV rules. Negotiations in good faith and the involvement of exporting country stakeholders could and should result in the identification of a broader range of MRV standards for facilities to apply. This would considerably reduce regulatory burdens and economic costs for market operators based in non-developed countries, and avoid the potential application of multiple emission accounting standards in specific jurisdictions. Further, it would enable facilities to apply comparably effective international (e.g. ISO) or third country standards: if assessed from this vantage point, the EU top-down imposition of its domestic MRV rules also amounts to coercion within the meaning of the Chapeau.Footnote ¹¹⁷ These arrangements would go a long way towards facilitating compliance and enforcement, while fully preserving the environmental integrity of the CBAM.

An interpretation of the Chapeau of Article XX GATT in light of this narrower capabilities-centred approach would be associated with several advantages. First, as this section has illustrated, it would not undermine but rather enhance the environmental effectiveness of the CBAM arrangements. Regulatory adjustments to cater to local implementation challenges and the provision of adequate support can tackle trade diversion risks, foster cooperation, and improve the implementation, monitoring and enforcement of environmental standards. Second, this interpretative approach would more closely reflect the operationalization of the principle of CBDR-RC under the Paris Agreement.Footnote ¹¹⁸ Third, this narrower interpretative approach would be more faithful to the WTO dispute settlement organs’ interpretation and application of the Chapeau requirements. As illustrated in Section 2, a system of differentiated carbon border adjustments and the provision of CBAM exemptions would be very difficult to reconcile with the ‘rational relationship’ test. This examination concludes the substantive analysis of the article. The next and final section draws all relevant conclusions, reverting to the points made in the introduction.

6. Conclusions: Environmental unilateralism and differentiation in times of climate crisis

This article has made two original contributions. First, it has assessed questions surrounding the EU CBAM’s justification under the Chapeau of Article XX GATT, as interpreted in the light of CBDR-RC. The analysis has complemented an in-depth insight into relevant trade law aspects with a nuanced examination of the CBDR-RC principle. As illustrated in Sections 2 to 4, a close analysis of the UNFCCC regime and climate litigation militates against an interpretation that would warrant a system of differentiated carbon border adjustments or the provision of CBAM exemptions. Second, the article has advanced a normatively informed, capabilities-centred interpretation of the Chapeau requirements. Section 5 has unpacked the implications of this narrower interpretative approach, demonstrating that it is associated with three major advantages.

This final section reverts to the bigger picture painted in the introduction. A circumscribed, capabilities-centred interpretation of the Chapeau requirements meets one obvious objection: it cannot do full justice to the different developmental context and socio-economic conditions prevailing in non-developed countries. Nor can it account for their marginal past responsibilities for GHG emissions. Dismissing this objection as unfounded would be disingenuous. The catastrophic effects of climate change, however, should caution us against recourse to ‘hard’ forms of differentiation; as explored throughout the article, this form of arrangements are bound to undermine the environmental effectiveness of unilateral measures.

As noted in the introduction, the rise of trade-related environmental leverage must be set into context. Leverage dynamics stem from an attempt to remedy the dramatic failures of environmental multilateralism. In an increasingly uncertain and fragmented legal landscape, they can play a pivotal role to steer actors operating in global value chains and lower environmental ambition third countries. A capabilities-centred interpretation of CBDR-RC can chart a middle way between the imperatives of the net-zero transition, and the need to account for the needs and circumstances of non-developed countries. It prompts leveraging jurisdictions to take the regulatory implementation conditions prevailing in differently situated countries into due consideration, and requires them to provide appropriate adjustments and adequate support. As demonstrated by the analysis of the CBAM, it also safeguards and reinforces the environmental effectiveness of trade-related leverage dynamics. This is of paramount importance for climate futures.

As the world approaches a median global warming of 2.1 to 3.4 degree Celsius,Footnote ¹¹⁹ the time is ripe for developed and non-developed countries to acknowledge that development cannot follow the carbon-intensive models of the past. The time has come to embrace a ‘softer’ approach to differentiation, and to zoom in on the distribution of the costs of transitioning to more sustainable production patterns. While far from perfect, a capabilities-centred interpretation of the CBDR-RC principle and a narrow approach grounded on distributive justice can help us to square the circle. In times of climate emergency, this might be the only available effective option.