In an era of intensifying climate policy, the European Union (EU) has stepped forward with a bold but controversial tool: the Carbon Border Adjustment Mechanism (CBAM). Often referred to as the world’s first carbon border tax, CBAM seeks to level the playing field for European industries subject to the EU’s carbon pricing rules. But while the EU argues this is a necessary move to prevent “carbon leakage,” many emerging markets view it as the opening shot in a new form of green protectionism.
CBAM officially entered its transitional phase in October 2023, requiring importers of carbon-intensive goods like steel, cement, aluminium, fertilisers, and electricity to report emissions associated with their products.
As of January 2026, importers will have to begin paying for those emissions at the same rate as EU producers under the EU Emissions Trading System (ETS). By 2034, CBAM is expected to fully replace the free carbon allowances currently granted to EU industries.
On paper, the logic is sound: why should EU producers face high carbon costs while competitors abroad operate in low-regulation environments? Without a border mechanism, carbon-intensive production could simply shift to countries with looser rules, undermining both EU competitiveness and global climate goals. CBAM aims to address this by aligning import costs with domestic carbon prices, incentivising cleaner production everywhere.
Yet for many countries in the Global South, CBAM feels less like climate leadership and more like a tax on development. Exporters across the Middle East, North Africa, Asia, and Latin America rely heavily on fossil fuels and carbon-intensive manufacturing. For them, CBAM represents a looming cost burden that could erode trade competitiveness and deter foreign investment.
Egypt, for instance, has expressed concern over CBAM’s impact on its steel and fertiliser exports, while India has called the policy discriminatory and hinted at filing a World Trade Organisation complaint. Turkey, a major steel exporter to the European Union, has ramped up efforts to develop its own carbon pricing system, in part to shield its industries from CBAM penalties. Even China, whose vast industrial sector is squarely in CBAM’s crosshairs, has criticised the measure as “unilateral” and incompatible with multilateral climate agreements.
To address some of these criticisms, the EU has pledged technical assistance to help low- and middle-income countries decarbonise their supply chains. Still, the underlying tensions remain. Critics argue that CBAM could create a two-speed climate economy, where richer countries impose costs while poorer ones scramble to comply. Without adequate support, they say, CBAM risks deepening the economic divide between the Global North and South.
Supporters counter that CBAM is a vital catalyst for global climate alignment. The policy, they argue, is already encouraging countries to consider carbon pricing, develop emissions tracking systems, and invest in cleaner technologies.
In that sense, CBAM may accelerate climate action not just within the EU, but globally. Already, countries like Vietnam and Indonesia are exploring domestic carbon markets, partly in response to external pressure from CBAM and other green trade measures.
Still, the risk of fragmentation looms large. Trade partners may respond with retaliatory tariffs or file disputes at the World Trade Organisation, challenging CBAM as an unfair trade barrier. There is also the potential for supply chain shifts, with companies rerouting products through intermediaries or adjusting sourcing patterns to bypass CBAM costs.
Meanwhile, the administrative burden on importers and exporters, from emissions verification to compliance documentation, could prove costly, particularly for smaller firms.
As of mid-2025, the EU is working to refine CBAM’s methodology and expand its scope to additional sectors, including hydrogen and some downstream products. The financial phase-in is still months away, but the policy has already reshaped trade conversations worldwide. From Brussels to Beijing, carbon pricing is no longer just an environmental issue; it is now a central pillar of global economic strategy.
In the end, CBAM’s success or failure may depend on whether it is seen as a punitive measure or a collaborative one. If Europe can pair enforcement with genuine climate finance, capacity-building, and fairness in trade negotiations, the world might move closer to a unified climate economy. But if CBAM becomes a symbol of coercion rather than cooperation, it may trigger a new wave of economic friction just when global unity is most needed.