Governments Seek Strategies to Protect Exports Amid CBAM Implementation

The Carbon Border Adjustment Mechanism (CBAM), introduced by the European Union in October 2023, has spurred a variety of reactions from countries worldwide. As this new regulation reshapes international trade norms, three primary response strategies have emerged: opposing CBAM and labeling it as discriminatory, planning to implement similar mechanisms, and adapting domestic carbon pricing policies to align with EU standards.

Opposition to CBAM: The BASIC Countries Lead the Charge

The strongest opposition comes from the BASIC nations—Brazil, South Africa, India, and China. At the UN Climate Conference COP29, these countries pushed to include CBAM on the agenda, arguing against its unilateral nature.

• Brazil regards CBAM as discriminatory and potentially counterproductive in reducing global carbon emissions.
• South Africa criticizes the mechanism for overlooking the specific needs of developing nations.
• India perceives CBAM as a trade barrier and plans to challenge its legality at the World Trade Organization (WTO). The Indian government has also rejected EU proposals to raise domestic carbon taxes.
• China has called for WTO compliance and advocates for multilateral discussions to address CBAM’s implications.

The BASIC countries argue that CBAM undermines the principles of the Paris Agreement, which emphasize equity and differentiated responsibilities based on national circumstances. They contend that developing nations cannot bear the same climate commitments as developed economies.

Poland’s Legal Challenge to CBAM

Within the EU, Poland remains the sole member state opposing CBAM. The Polish government has filed a legal case in the Court of Justice of the European Union, arguing that CBAM constitutes a fiscal measure requiring unanimous consent from all EU member states. The ongoing proceedings, which began in August 2023, may take up to two years to resolve.

Plans for CBAM Adoption in Other Nations

Several countries are considering or actively pursuing the introduction of their own CBAM-like mechanisms:

• Australia is assessing the feasibility of a domestic CBAM, with consultations currently underway.
• In the United States, four climate bills were introduced in Congress in 2023, one of which proposes import duties on high-carbon products.
• Canada initiated public consultations in 2021, with discussions continuing.
• Taiwan aims to implement its own CBAM by mid-2025.
• South Korea began consultations on a CBAM framework in August 2024.
• The United Kingdom plans to introduce its CBAM in January 2027, initially covering aluminum, iron, steel, cement, fertilizers, and hydrogen. Other sectors, such as glass and ceramics, may be included later.

Domestic Carbon Pricing Initiatives

In response to CBAM, many countries are developing domestic carbon pricing mechanisms, either as a precursor to CBAM adoption or as a standalone measure:

• Japan launched a pilot emissions trading system (ETS) in 2023, with full implementation slated for 2026.
• Turkey plans to introduce an ETS in 2025, acknowledging the influence of the EU’s CBAM.
• Indonesia has already launched a carbon market, IDXCarbon, and is advancing its regulatory framework.
• Israel is preparing for a national carbon tax.
• Vietnam intends to pilot an ETS by 2025.
• Malaysia has expressed the need to implement carbon pricing before the full enforcement of the EU’s CBAM.
• Morocco plans to introduce a carbon tax by 2025.

Impact on Ukraine and Its Response

Ukraine faces significant challenges under CBAM, as iron and steel products—accounting for 93% of its exports affected by the regulation—are heavily targeted. The country risks losing its market for billets and long products in the long term.

To mitigate these impacts, Ukraine is negotiating an exemption from CBAM, leveraging its aspirations for EU membership. As part of its commitments to the EU, Ukraine is also working on establishing its own emissions trading system.

Toward Global Carbon Pricing

The introduction of the EU’s CBAM has not only prompted direct responses but also accelerated discussions on global carbon pricing. As nations implement domestic carbon taxes and emissions trading systems, the groundwork for a broader international framework is being laid, potentially reshaping the global climate policy landscape.