Next Steps for the EU’s Carbon Border Adjustment Mechanism: Integration into Wider Climate Diplomacy

The European Union’s Carbon Border Adjustment Mechanism (CBAM) marks a pivotal step in aligning climate ambition with global trade. As carbon- and trade-exposed industries—such as shipping, aviation, steel, and cement—account for over 20% of global greenhouse gas emissions, the challenge of decarbonizing these sectors is both urgent and complex. High costs, limited electrification options, and the risk of carbon leakage have made traditional carbon pricing instruments less effective for these industries.

The EU’s CBAM seeks to address this by ensuring that imports into the EU face a carbon price equivalent to that paid by domestic producers under the Emissions Trading Scheme (ETS). This mechanism is not just about protecting EU industries; it is a strategic move to incentivize global partners to adopt ambitious climate policies and prevent the relocation of emissions rather than their reduction.

However, the implementation of CBAM is not without challenges. Technical hurdles—such as calculating embedded emissions and verifying carbon prices paid in exporting countries—demand international cooperation. The mechanism also raises questions about equity, particularly for developing countries concerned about the principle of Common But Differentiated Responsibilities (CBDR).

This policy brief explores how the EU can integrate CBAM into broader climate diplomacy. It argues for a collaborative approach, engaging trading partners in dialogue to decarbonize industries in a way that is both effective and equitable. By fostering partnerships, aligning methodologies, and addressing concerns about burden-sharing, the EU can turn CBAM into a catalyst for global climate action—ensuring that trade and sustainability go hand in hand.