The European Union’s (EU) Carbon Border Adjustment Mechanism (CBAM) regulation has recently undergone a comprehensive review by the World Trade Organization (WTO) during its 15th trade policy review meeting. The CBAM is a key element of the EU Green Deal, aimed at promoting global carbon emission cuts and levelling the playing field for European industries. The policy, which aligns with the broader target of lowering greenhouse gas emissions by 55% by 2030, involves applying a carbon price to imports of certain goods to the EU, proportionate to their “embodied emissions” generated during production.
The CBAM is designed to prevent carbon leakage by companies relocating their production outside the EU to evade climate regulation costs. It covers certain products in some of the most carbon-intensive sectors, including iron, steel, cement, fertilizers, aluminum, electricity, and hydrogen. Eventually, all EU ETS-covered products and emissions from international transportation will fall under the CBAM scope by 2030. Each CBAM certificate equals one tonne of emissions, and the number of certificates must be equal to the total embodied emissions of the imported goods.
While the carbon price policy has good intentions, it is expected to face significant international backlash, particularly from countries heavily reliant on fossil fuels. To predict which nations are most likely to oppose the CBAM, researchers have developed the CBAM Opposition Index, based on five major factors: trade with the EU, carbon intensity, WTO disputes, domestic public opinion on climate change, and capacity for innovation. The analysis indicates that Iran, Ukraine, the USA, the United Arab Emirates, Egypt, China, India, Kazakhstan, Russia, and Belarus are most likely to oppose CBAM, with China expressing the most opposition.
China believes that the CBAM fails to align with the principles of the United Nations Framework Convention on Climate Change, the Paris Agreement, and WTO rules. The country argues that this mechanism will discriminate against imported products and limit market access, especially from developing WTO member nations. China also pointed to recent research reports stating that CBAM will cause losses of $25 billion to African countries each year and affect $8 billion worth of Indian exports, particularly in the steel and aluminum sector.
The EU, on the other hand, believes that promoting the green transformation of the global society is an urgent challenge and seeks to achieve climate neutrality by 2050 under the European Green Deal. With that, CBAM will operate starting October this year with simplified reporting obligations focused on data collection. Its full enforcement will start in January 2026, including financial obligations for importers to buy CBAM certificates. The CBAM will be gradually phased in parallel to the phasing out of EU ETS-free allowances over a nine-year period, from 2026 to 2034. The mechanism is one of the ambitious steps by the EU toward fostering a green global economy. However, the future of CBAM lies in its acceptance by the global community, especially by major trading partners like China.
In conclusion, the EU’s CBAM regulation is a significant step towards promoting global carbon emission cuts and levelling the playing field for European industries. However, it is expected to face significant international backlash, particularly from countries heavily reliant on fossil fuels. The future of CBAM lies in its acceptance by the global community, especially by major trading partners like China. The EU’s efforts to foster a green global economy are commendable, but it remains to be seen how the CBAM will be received by the international community.