The European Union’s Carbon Border Adjustment Mechanism has become one of the most significant recent changes in the relationship between climate policy and global trade. This is not only because of what it attempts to do environmentally, but because of how it redistributes economic and regulatory power across countries at very different stages of development.
CBAM is designed to address carbon leakage, which occurs when companies shift production to countries with weaker climate regulations while continuing to export carbon intensive goods back into markets with stricter rules. Under the mechanism, imports of products such as steel, cement, aluminium, fertilizers, electricity, and hydrogen are subject to charges based on the emissions embedded in their production. Exporters are required either to provide verified emissions data or to pay a levy reflecting the difference between their domestic carbon costs and those faced by European producers under the EU Emissions Trading System.
International Carbon Action Partnership (ICAP)/Website
From a climate perspective, the logic is straightforward. If emissions are priced within Europe but not at the border, then firms are incentivized to relocate production rather than invest in cleaner technologies, which undermines the environmental goal of reducing global emissions. CBAM attempts to correct this by extending the carbon price beyond Europe’s territory through trade.
However, the effects of this policy are not distributed evenly. Many developing economies rely heavily on carbon intensive industries for employment, infrastructure development, and export revenue, and often lack the institutional capacity to comply with complex reporting and verification requirements. For these countries, CBAM does not simply represent an environmental standard but a new regulatory barrier that can limit access to one of the world’s largest markets.
This is why CBAM has generated significant concern among developing countries who view it as unilateral and potentially unfair, not necessarily because they reject climate action, but because they experience the policy as imposing costs without providing commensurate support.
If the mechanism is perceived primarily as a trade restriction rather than as part of a cooperative climate strategy, it risks provoking retaliatory trade measures, increasing disputes at the World Trade Organization, and fragmenting global climate governance into competing blocs rather than encouraging coordinated action. For this reason, CBAM cannot operate effectively in isolation.
European Commissions/Website
One necessary complement is investment into emissions measurement and verification capacity in exporting countries — including technical assistance, training, data systems, and independent auditing infrastructure — without which many producers are simply unable to comply regardless of their willingness to reduce emissions. If compliance depends more on administrative capacity than on actual environmental performance, the mechanism risks reinforcing existing inequalities rather than reducing emissions.
A second necessary complement is reliable and accessible climate finance. Many developing countries face real financial constraints that prevent them from investing in cleaner production technologies even when the long term benefits are clear. When climate finance is insufficient, delayed, or delivered primarily through loans rather than grants, it can deepen debt burdens and economic vulnerability rather than enabling transition.
A third complement is the design of incentives within CBAM itself so that firms investing in cleaner production clearly benefit from reduced border charges and stable market access, ensuring that the mechanism functions as a transition pathway rather than merely as a penalty.
It is also important to recognize that CBAM is not only a climate policy but also an industrial and competitiveness policy, since it protects European producers from being undercut by imports produced under weaker environmental standards. This dual function does not make the policy illegitimate, but it does mean that transparency about its goals and fairness in its implementation are essential for maintaining trust and cooperation.
CBAM is part of a broader shift in climate governance away from voluntary commitments and toward enforceable mechanisms. This shift can be seen in corporate disclosure requirements such as the EU’s Corporate Sustainability Reporting Directive, which mandates reporting on emissions, climate risks, and transition strategies, as well as in the development of international standards by the International Sustainability Standards Board. Together, these policies reflect growing frustration with the slow pace of climate diplomacy and the limitations of non-binding agreements.
At the same time, this shift raises a central challenge. Enforcement without cooperation can reduce trust, intensify geopolitical tensions, and undermine the collective nature of climate action, particularly when enforcement is led by economically powerful regions and imposed on weaker ones.
The central question, therefore, is not whether climate policy should be enforced, but how enforcement can be designed in a way that supports cooperation, recognizes unequal capacity, and avoids turning climate governance into another arena of economic conflict.
CBAM represents an important experiment in integrating climate responsibility into global trade, but its long term success will depend on whether it becomes part of a shared transition framework or remains a source of division between countries with very different histories, capacities, and priorities.
