Having pushed by European Green Deal, the European Union (EU) has long been an environmental actor. Constitutionally, Single European Act (1987) provided the initial legal basis for an environment policy of the EU, further refined by the Treaties of Maastricht (1993), Amsterdam (1999) and Lisbon (2009). Currently, the EU is competent to act in all areas of environment policy (Article 191–193 of the Treaty on the Functioning of the European Union (TFEU)) and “environmental protection requirements must be integrated into [all policies], in particular with a view to promoting sustainable development” (Article 11 TFEU).

One such policy is the EU’s Common Commercial Policy (CCP), forming the basis of its external trade law. According to the Treaties (Article 207(1) TFEU and Article 21(1) and (2) of the Treaty on the European Union) and their interpretation by the Court of Justice of the European Union (Opinion 2/15, paragraph 147), EU’s CCP –an exclusive competence of the EU (Article 3(1/e) TFEU)– is to be conducted, among other things, in line with sustainable development. As a result, particularly since 2010s, EU’s autonomous trade measures, such as Global System of Preferences (GSP) and conventional trade measures, such as Free Trade Agreements (FTAs), have started to include sustainable development related arrangements.

Furthermore, there is a discernible trend toward more ambitious commitments, broader subject matters, and increased effectiveness in implementation and enforcement in this area of law. For example, the Commission’s proposal for the new GSP for the period 2024-2034 aims to extend negative conditionality (removing the preferential trade arrangement if the benefiting country acts contrary) to the environment conventions, including the Paris Agreement (COM(2021) 579 final). Similarly, EU’s FTAs feature Trade and Sustainable Development (TSD) Chapters, which can be generally classified under three pillars: (i) commitments (soft or hard obligations): referral to (international and/or minimum) labour and environmental standards to be observed by the parties, (ii) implementation: establishment of an institutional setting –both governmental and non-governmental, i.e. participation of civil society– for implementation and/or monitoring of the TSD Chapter; (iii) enforcement: establishment of a special Dispute Settlement Mechanism (DSM), with non-binding panel reports and without sanctions. Lastly, the EU has appointed Chief Trade Enforcement Officer to strengthen the implementation and enforcement of EU trade policy, including environmental commitments of treaty partners.

Consequently, this paper will attempt to take stock of the EU as an environmental actor in its external trade law.

The gains from trade liberalization are accompanied by the environmental externality of increased greenhouse gas emissions. The EU is currently active on both trade and climate policy frontiers. By means of a counterfactual general equilibrium new quantitative trade model, this study uncovers trade, CO2 emissions, and welfare impacts of an EU-India FTA, first as a standalone policy, and then, in conjunction with the Carbon Border Adjustment Mechanism (CBAM). Trade data from the OECD Inter-Country Input-Output (ICIO) tables and CO2 emission data from the OECD Trade in Embodied CO2 (TECO2) database are used. While the CBAM decreases trade volumes and CO2 emissions, a hypothetical EU-India FTA results in significant increases in both trade and CO2 emissions. When considering the Armington assumption of national product differentiation and no intermediate goods, the welfare effects of the EU-India FTA alone are negative for India.