The Gate Sequencing Effect: Why Carbon Accounting Capability Determines DPP Readiness

Abstract

The European Union's Carbon Border Adjustment Mechanism and Digital Product Passport are usually treated as separate regulatory streams. They are not separate in the capability they demand. Both require product-level data infrastructure, both require supply chain traceability that extends past the enterprise boundary, and both require verification meeting European-recognized standards. This paper argues that the order in which the two arrive matters, and develops the Gate Sequencing Effect to describe why. Carbon accounting capability built for the carbon mechanism functions as a prerequisite that lowers the marginal cost of subsequent passport adoption. The enterprise that has already built actual-emissions reporting holds data systems, verification relationships, and supplier engagement processes that passport requirements extend rather than originate. The enterprise that relies on the carbon mechanism's default values starts the second gate from nothing.

The argument is tested against a proxy assessment of eighteen enterprises across Germany, China, and Turkey in steel, aluminum, and cement. Default-value dependence and passport readiness are estimated from public disclosure rather than confidential filing data, and the two estimates share one indicator, which inflates any raw association between them. The meaningful test is whether default dependence predicts readiness on the components the two measures do not share, and it does, though more modestly than the headline figure suggests. The cleanest evidence comes from within-country comparison, where national institutional conditions are held constant and only firm-level investment choice varies. Baowu, having built product-level carbon infrastructure ahead of any domestic mandate, reaches a default-dependence position close to the German cluster, while a Chinese cement producer operating under identical national conditions remains far higher.

The pattern is a stratified compliance landscape in which early carbon data investment compounds into later advantage. The broader contribution is the sequencing lens itself: regulatory ordering shapes the accumulation of firm-level capability across adjacent regimes, and the capability that one regime forces into existence becomes the substrate the next regime builds on. The capacity to comply, unevenly distributed, is the variable that determines who can meet the requirements at all.

1. Introduction

The European Union has assembled an integrated regulatory architecture for sustainable trade. The Carbon Border Adjustment Mechanism entered its definitive phase in January 2026, requiring importers of steel, aluminum, cement, fertilizers, electricity, and hydrogen to surrender certificates against the embedded emissions of what they bring in [1]. The Ecodesign for Sustainable Products Regulation, adopted in 2024, mandates Digital Product Passports carrying environmental and material information for products sold in European markets [2]. Policy discussion has treated these instruments as separate streams. The framing misses a structural relationship between them.

Both mechanisms demand the same underlying capability. Both require product-level data infrastructure. Both require supply chain traceability reaching past the enterprise boundary. Both depend on verification procedures meeting European-recognized standards. The overlap raises a question with direct consequences for transition planning: do the investments an enterprise makes for the carbon mechanism transfer to readiness for the passport?

Prior analysis in this research program established that audit-based climate governance is structurally irreversible [3], and that its compliance burden falls unevenly across industries and jurisdictions in ways that reflect access to rule-making rather than technical rationality alone [4]. That second analysis closed on a variable it did not resolve: the capacity of firms and countries to meet the requirements is itself unequally distributed, and the inequality determines who can comply at all. This paper takes up that variable. It develops and tests the Gate Sequencing Effect, which holds that carbon accounting capability functions as a structural prerequisite for efficient passport implementation. Enterprises that invested in product-level carbon accounting hold the data systems, verification relationships, and supplier engagement processes that lower the marginal cost of the next regime. Enterprises that lean on the carbon mechanism's default values face a compounding disadvantage as passport requirements mature.

The question matters across several audiences. Enterprise strategists allocating transformation budgets need to know whether sequential or simultaneous implementation is more efficient. Policymakers designing technical assistance need to identify investments that pay across regulatory domains rather than within one. Investors pricing transition risk need a frame for how a firm's current compliance position predicts its future regulatory exposure. The sequencing lens speaks to all three.

The contribution sits against a literature that has treated the two regimes apart. Early carbon-mechanism scholarship modeled trade-flow and competitiveness effects across exporting countries [21] and assessed leakage against rebate and border-adjustment alternatives [22], while legal work examined compatibility with trade law and the limits that non-discrimination places on environmental measures [23]. Passport scholarship has grown separately, around circular-economy design, data architecture, and interoperability. Each body of work treats its instrument as self-contained. None asks whether capability built for one transfers to the other. That omission is the gap this paper fills, and the omission matters because the instruments draw on a shared capability that their separate literatures obscure.

The paper proceeds as follows. Section 2 develops the Gate Sequencing Effect and the four channels through which carbon capability transfers to passport readiness. Section 3 describes how default dependence and readiness are estimated from public information, and confronts the limits of proxy measurement directly. Section 4 presents the stratified landscape the assessment reveals, with the within-country comparison as its cleanest evidence. Section 5 draws out what the pattern shows. Section 6 turns to implications and limits. Section 7 concludes.