The EU carbon border adjustment mechanism: a systematic review of conceptual evolution, governance challenges, and future pathways

The EU’s Carbon Border Adjustment Mechanism (CBAM) is intended to address carbon leakage and support EU climate goals under the European Green Deal. This review synthesizes over 100 peer-reviewed articles through a systematic, theme-based methodology. We examine CBAM’s theoretical underpinnings, economic implications, legal challenges, and global governance ramifications across four key themes: (1) its design rationale within carbon pricing frameworks; (2) projected impacts on trade, competitiveness, and emissions; (3) legal and geopolitical tensions; and (4) responses from trading partners and industries. We find that, in ex-ante modelling studies published prior to the implementation of CBAM mandates, the mechanism is primarily effective at preventing carbon leakage for covered sectors under fixed demand assumptions, whereas its projected direct contribution to global emission reductions is limited. This finding reflects model-based predictions rather than empirical observations, because the requirement of purchasing certificates commenced only recently. However, dynamic demand effects, such as substitution toward cleaner alternatives, could amplify its long-term global impact. The mechanism navigates a narrow legal path under World Trade Organization (WTO) rules, imposes disproportionate costs on developing economies, and has triggered heterogeneous strategic responses globally, ranging from litigation to the formation of alternative climate clubs. By identifying current insights and critical research gaps, this review aims to guide future scholarly and policy discussions on border carbon adjustments in global climate governance and trade.Key policy insightsCBAM prevents carbon leakage but yields limited global abatement.Demand-side substitution and innovation could amplify effects, but this requires empirical validation.WTO compatibility hinges on procedural fairness, a full phase-out of free allowances by 2034, and reconsideration of default values (benchmarks) that, at present, impose disproportionately high costs on exporting jurisdictions with limited capacity to measure, report, and verify emissions.Multilateral cooperation is likely to be undermined by disproportionate costs affecting developing economies, as well as fragmented strategic responses, from litigation to climate clubs.