Approximately 55 % of carbon emissions in EU are caused by imported goods ranging from cement to textile. Europe’s efforts to reach climate-neutral status by 2050 under the new EU Green Deal could be seriously undermined by the lack of climate ambition from none-EU partners exporting high carbon intensive goods into Europe and more specifically carbon leakage. In this context, the EU Green Deal provides a new and ambitious mechanism, the Carbon Border Adjustment Mechanism (CBAM) to counteract climate leakage by imposing restrictions against imports of carbon intensive goods originating from outside EU. Exclusive rights, given under a trade mark or a patent, to manufacture and export goods will be challenged since the CBAM intends to make imports of goods in the EU conditional to their compliance with a carbon footprint level. This article reviews the interplay between the CBAM and IP Rights and offers concluding remarks on carbon footprint traceability technologies.
The EU has successfully reduced its greenhouse gas emissions (GHG) while increasing its GDP. In 2018, the GHG emissions reduced by 23 % compared to 1990, while EU's GDP increased by 61 % during the same period. Clearly, economy growth and climate change reduction are able to coexist. Carbon neutrality the overarching objective of the new EU Green Deal. The EU will aim to reach net-zero GHG emissions by 2050, a goal that will be enshrined in a ‘climate law’ to be presented in the EU Parliament in 2020. That means updating the EU’s climate ambition for 2030, with a 50-55% cut in GHG emissions to replace the current 40% objective.
2. The Carbon Border Adjustment Mechanism to counter carbon leakage
The aim of the CBAM is to counter “carbon leakage” whereby EU industries are penalized by cheaper imports from countries that apply less strict rules to tackle climate change.EU produced goods may become less competitive both locally and internationally, while products from outside the EU would become more profitable, this could, in turn, add to the reasons to place manufacturing outside the EU. i.e., both taking jobs out of the EU and ultimately also leading to an increase in carbon emissions.
The CBAM is a kind of tax which will, at the beginning, apply to raw materials only (e.g. cement, steel and aluminum) produced outside the EU and imported into the EU, the carbon footprint of which exceed a level set by the EU. The CBAM may apply to processed goods and other materials (e.g chemicals, textiles) at a later stage. The CBAM is also to avoid carbon leakage.
3. Greening Intellectual Property Rights
An Intellectual Property Right (IPR) gives its holder an exclusive right of temporary use for a given territory. Exclusive rights include the right manufacture, export, import and distribute. There is a strong assumption that the holder of a patent or a trade mark is entitled to import and distribute its patented or branded product in the territory where its patent or mark is registered. An exception from that general rule is the CBAM. The importation and distribution of goods in the EU will be conditional to their carbon impact. In practice, technologies or branded goods, regardless they are protected through a mark or a patent in the EU, may not be able to enter and compete in the EU if their carbon footprint incurred in their production process (i.e. manufacturing process, transportation) and as final products (i.e. recyclable etc) exceed a limit fixed by the EU. In this situation, importers would have to pay a tax under the CBAM this would effectively raise the price of imported goods.
A dual approach is then needed when giving IP advice to exporters of goods to EU, taking into account (i) goods' appearance (ii) goods' content. While IP usually focuses on goods' appearance (e.g. design, trademark), climate law focuses on goods' carbon content.
As part of the EU Green Deal developments, the EU Commission is also due to issue its Intellectual Property Action Plan (IPAP) in May 2020 to uphold technological sovereignty, promote global level playing field, better fight intellectual property theft and adapt the legal framework to the green and digital transition. It'll be interesting to see how WTO/TRIPS and UNFCCC/Paris Agreement on Climate Change mutually support or not since in the view of some experts the CBAM may breach WTO rules, which require equal treatment of similar products and no discrimination between domestic and foreign producers.
4. Technology to calculate and trace carbon footprint
The CBAM's implementation would require efforts in measuring , tracing and labeling carbon content of goods. In view of globalization, this would mean that goods have to be followed, checked and labeled from initial stage to final product stage. Still, the CBAM is a laudable effort to bring about carbon truth.
As we are in the midst of an unprecedented public health and economic crisis, we see emerging public awareness and consciousness on health issues. Climate Change is intrinsically linked to public heath as stated in the Paris Agreement on Climate Change. The CBAM would help reducing emissions and create government revenue to restore fiscal balance. As long as there is a strong political commitment to increasing the scope of the CBAM (adding new materials and goods to the current list of cement, steel and aluminum) over the long run, we can finally be on the right path towards achieving meaningful carbon emission reduction and IP strategies need to reflect this by unlocking opportunities in a fast increasingly carbon-constrained economy.