Evaluating the impact of CBAM on developing countries

Policy Study

This policy study provides a critical analysis of the EU’s Carbon Border Adjustment Mechanism (CBAM) from the perspective of developing countries, emphasizing the potential economic impacts and trade-related tensions that may arise from its implementation. While the EU’s commitment to decarbonization through its European Green Deal is admirable, the CBAM’s design and enforcement could impose costs on developing nations, particularly those with close trade ties to the EU. The CBAM aims to prevent carbon leakage by applying a carbon price on imports; however, its effectiveness remains to be seen. Moreover, the brief underscores the challenges posed by the CBAM’s expectations for businesses in other jurisdictions to align with the EU’s carbon pricing, despite the lack of time and resources for partners’ equivalent systems to evolve as they did within the EU’s own Emissions Trading System (ETS).

We also address the broader implications of the CBAM for global cooperation on climate change, especially in the context of strained multilateralism. As developing countries view the CBAM as an external imposition rather than a purely internal EU measure, it risks exacerbating trade tensions and undermining international climate agreements. Furthermore, the economic impact on developing countries may exceed the revenues generated by the CBAM, leading to calls for compensatory measures. The brief concludes with recommendations for developing nations to engage in negotiations with the EU to ensure a more equitable implementation of the CBAM, considering the principles of climate justice and the unique challenges faced by lower-income countries in adapting to stringent environmental standards.