The State of BCAs 2025
As more countries strengthen their climate policies, concerns over carbon leakage—where emissions reductions in one country are offset by increases elsewhere—have grown. To address this, several countries are implementing border carbon adjustments (BCAs), with the European Union (EU) and the United Kingdom set to launch theirs by 2026 and 2027, respectively. This publication is the first of its kind taking stock of this trend.
Key Findings
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The European Union and the United Kingdom are leading with BCAs set to be fully operational by 2026 and 2027, respectively, targeting high-emission imports like steel and cement. Other countries are actively discussing similar mechanisms to protect domestic industries while advancing climate goals.
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Research confirms that carbon leakage occurs when stringent climate policies in one country lead to increased emissions elsewhere. The OECD found that 13% of emissions reductions from carbon pricing were offset by leakage, while the IMF estimates leakage rates of up to 25% across sectors.
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The WTO has seen increasing debate on the trade impacts and fairness of BCAs, with concerns from major economies about potential protectionism and compliance with WTO rules. As BCAs expand, international cooperation is needed to ensure interoperability, fairness, and alignment with trade rules.
As more countries ramp up their climate policies, BCAs have emerged as a tool to prevent carbon leakage, ensuring emissions reductions are not offset by shifts in production to regions with weaker regulations. Research confirms leakage is a real issue: it is estimated that, on average, when one country mitigates 100 tonnes of carbon dioxide in one country, 13% to 25% of this effort is offset by emissions increases in other countries, through carbon leakage.
The EU's Carbon Border Adjustment Mechanism (CBAM), set for full implementation by 2026, replaces free allocation under the EU Emissions Trading System. It applies carbon costs on imports in key sectors such as steel, cement, and aluminum, aligning gradually with EU carbon pricing. The UK CBAM, launching in 2027, mirrors the European Union’s approach but with differences in emissions scope and coverage. Meanwhile, Australia's Carbon Leakage Review has recommended a BCA to complement its Safeguard Mechanism, focusing initially on cement.
Beyond these developments, Canada and the United States continue exploring BCA policies. At the World Trade Organization (WTO), discussions on BCAs have intensified, with growing concerns about trade impacts, WTO compatibility, and cooperation on climate-related trade measures.
BCAs are shaping global trade and climate policy, with ongoing debates on their design, fairness, and effectiveness in reducing emissions without harming economic competitiveness.
Participating experts
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