Interoperability or Fragmentation? The next test for border carbon adjustments

As more jurisdictions plan or envision border carbon adjustments (BCAs), the degree of trade friction they create will depend on how well these regimes can work together.

The European Union may have pioneered a trend with its Carbon Border Adjustment Mechanism—a regime that forces importers to pay for the carbon emitted during production of their goods as if they had been produced under the European Union’s carbon pricing scheme. The United Kingdom and Norway have announced that they will soon follow suit, Australia and Chinese Taipei are actively exploring the idea, Canada’s governing Liberal Party promised such a regime in its election platform, and the United States has had bills before Congress for the last decade proposing to price carbon at the border. Others may follow as they look for ways to ensure that their carbon pricing regimes don’t simply see emissions exported to other countries where producers don’t face a carbon price.

What if that all comes true? Will exporters have to comply with different rules in each of those markets for measuring, reporting, and verifying the emissions they create in producing goods? That would quickly become a trade-restrictive, costly mess, driving up the costs of essential commodities like steel, aluminum, cement, and fertilizers. It would be particularly hard on smaller producers, and especially those from developing countries that are strapped for resources to support them in the transition to low-carbon production.

What's to be done?

In an ideal world, every BCA scheme would require measurement, reporting, and verification of carbon emissions to the same protocols, and exporters would only have to comply once to access the various BCA-covered markets. 

The long history of countries trying—mostly unsuccessfully—to reach even the less ambitious goal of mutual recognition of each other’s standards suggests that full harmonization is an unrealistic goal. There are legitimate reasons for differing compliance requirements; typically, they stem from a country’s specific economic and political realities. In the case of a BCA, each country’s producers are already subject to their unique national carbon pricing regimes, and for better or worse, the BCA that tries to match that regime at the border will mirror those unique characteristics.

A more realistic goal is interoperability. The goal would be that each jurisdiction crafts its BCA in such a way that it can work alongside other global BCA regimes to lower compliance barriers, even while maintaining differences in approach at the national level.

What would that look like in practice? The answer is different for each of the three elements of the “compliance chain”: measurement, reporting, and verification.

Measurement

One of the most critical differences between regimes for measuring greenhouse gases emitted in production is the different system boundaries. The full life cycle of production involves the extraction and processing of raw materials, production of inputs like feedstocks, fuels, and upstream goods, production of electricity, production of the goods themselves, transport, end use, and disposal. Almost every regime has a different set of boundaries for the subset of those emissions it will cover, although they mainly cover direct and, to a lesser extent, indirect electricity emissions, and emissions embedded in input goods.

Interoperability in this context could mean each regime agreeing to split the larger suite of emissions accounting into discrete modules—for example, covering feedstock production, direct emissions in production, and emissions from electricity production. The producer could furnish all of these accounts once, and each BCA regime could draw on those that were relevant to its system boundary.

There is still the matter of how the emissions are measured in each module, and here, there may be differences in protocols like how plant-level emissions are converted into product-level intensities, and how emissions are allocated among goods in installations that produce more than one covered good, or how emissions are treated for different production technologies. But here again, with coordination, the principle could stand that the basic information could be measured once, and simply used differently under different rules for allocation or production routes.

Reporting

Reporting requirements may be among the simplest parts of the compliance chain to make interoperable. Many elements of reporting could be harmonized across regimes: basic producing firm information, goods produced, and production processes, for example. An ideal web of BCAs would also coordinate on timelines for reporting. Reporting on the results of measurement would still differ, of course, to the extent that protocols for measurement differed.

Verification

BCA regimes will require that the measurement of emissions be verified by an organization that is accredited by the regime to do such certification. Interoperability in this context could involve a BCA regime recognizing accredited verifiers from other BCA regimes as able to conduct its verifications as well. There would be considerable cost savings to having a single verifier certify a firm’s data across several different BCA regimes, even if there were differences in the underlying rules applied by each.

Getting from Here to There

How could the international community achieve interoperability of BCA regimes? It would first require political will to push national regulatory regimes to coordinate with those of other countries. That coordination would be complicated by the fact that there is already a functioning BCA regime with its own protocols for measurement, reporting, and verification in place—one that was constructed without the need to reference anything other than existing domestic regulatory practice—and more will soon be added to the mix.

Fortunately, there are existing forums whose mandates would make them appropriate venues for hosting the sort of international discussions that would be required. The Organisation for Economic Co-operation and Development’s Inclusive Forum for Carbon Mitigation Approaches, for example, has interoperability as a central concern. So does the G7-spawned Climate Club, now counting 43 members. Judging solely by the number of World Trade Organization submissions on the topic of such coordination, many countries understand the need. Some, for example, have submitted proposals at the World Trade Organization in 2025 to improve transparency and consistency in emissions accounting by promoting international standards where possible. Previously, the United States and China also called for interoperability of trade-related climate measures.

The benefits of international coordination in this space are clear, and the urgency for action is acute: interoperability will be far harder to achieve once multiple regimes are fully in force. It is time to pick this low-hanging fruit, bringing the beginnings of international cooperation to a policy tool that has, until now, been controversial and divisive.