Sharing the Costs of Climate Ambition: Rethinking Justice in the EU’s CBAM

Introduction

As the European Union (EU) enters 2026, its climate policy is becoming increasingly ambitious, with decisive measures being implemented to meet the target of reducing net greenhouse gas emissions by 55% by 2030. One of the most significant of these measures is the Carbon Border Adjustment Mechanism (CBAM), which, following a two-year transitional phase, has entered its definitive regime at the start of the year. This climate policy instrument is a crucial part of the European Green Deal, which aims to make the EU climate neutral by 2050 (European Council, 2025). The CBAM aims to have a global effect, minimising the risk of carbon leakage and incentivising trading partners of the EU to impose more stringent climate policies. The EU explicitly acknowledges the importance of such policies with global reach, emphasising that as a global problem, climate change requires global solutions (Taxation and Customs Union, 2026). However, the global reach of this policy is highly contested, as critics argue that it risks disproportionately affecting the least developed countries, thus reinforcing existing social and economic inequalities. This article explores the potential justice concerns raised by the EU’s CBAM and considers how its potential side effects might be mitigated in order to better balance climate justice and policy effectiveness.

What is the European Union’s Carbon Border Adjustment Mechanism?

The EU’s CBAM imposes a tariff on certain carbon-intensive goods imported into the EU, putting a price on carbon emissions generated during their production. Its primary objective is to ensure that imported goods face a carbon price equivalent to that borne by domestic producers under EU climate policies, thereby levelling the playing field and preventing carbon leakage (European Parliament, 2025). Carbon leakage refers to the relocation of their production to countries with weaker emission constraints, which risks undermining the effectiveness of climate policies (Carbon Market Watch, 2025). Accordingly, CBAM only applies to imports from countries with less stringent climate policies than those of the EU.

The EU’s CBAM has a strong potential for climate change mitigation. Estimates suggest that global emission could be reduced by approximately 40 million tonnes of CO2 annually, as the policy discourages carbon-intensive production and intends to reduce carbon leakage (Amendola, 2025). By extending the polluter-pays principle beyond EU borders, the policy creates an incentive for foreign producers to minimise their carbon footprint, in order to pay less tariffs. Furthermore, the policy could reduce carbon leakage by an estimated 29-55% (Amendola, 2025). In practice, the EU’s market power has already prompted several countries such as Turkey, Brazil and India to accelerate or implement domestic carbon pricing plans explicitly to align with the CBAM in order to maintain access to the EU market (Mehling et al., 2025). Overall emission reductions as a consequence of the policy are expected to remain modest at around 1% by 2030 (Cammeo et al., 2025).

Why is the EU’s Carbon Border Adjustment Mechanism problematic?

While, indeed, climate change is a global problem that requires global solutions, not all countries have contributed equally to this problem in the past and not all countries have the same resources to implement solutions today. This has been formally recognised by Article 3(1) of the United Nations Framework Convention on Climate Change in 1992 through the principle of Common but Differentiated Responsibilities and Respective Capabilities (CBDR-RC). The tenet holds that, while all countries must contribute to mitigation efforts, the associated burdens should not be shared equally (UNFCCC, 1992). This principle is a core pillar of the idea of climate justice in international climate policy.

The EU’s CBAM has been criticised for violating the CBDR-RC principle. By applying a uniform carbon price to selected carbon-intensive imports, irrespective of the exporting country’s level of development, the policy doesn’t acknowledge the differing capabilities and historical responsibilities of their trade partners (Wirdyansyah, 2025). This mechanism risks shifting the financial burden of the EU’s climate transition onto low-income, less developed countries, as these have the least capacity to adapt their production and environmental policies (Böhringer et al., 2022).

Empirical evidence suggests that the CBAM could have severe economic impacts on countries that are highly dependent on the EU as a trade partner such as Mozambique, Egypt and Algeria. These countries could face GDP contractions of up to 3% as a consequence of the CBAM policy (Janssen, 2025). When measured as a share of GDP per capita or export revenues, the impacts of the CBAM are disproportionately large for less developed countries (Smith et al., 2024). The social and developmental consequences of the CBAM are equally significant. Many industries exposed to the CBAM are labour-intensive, and most developing countries lack comprehensive social protection systems to absorb the welfare shock of potential job losses for a significant percentage of the total workforce (Magacho et al., 2022). The countries most exposed to the CBAM often lack the institutional capacity, and technological or financial resources to implement domestic carbon pricing systems that could allow them to avoid EU tariffs (Sandler & Schrag, 2022). Given developing countries’ disproportionate exposure to climate disasters and limited adaptive capacity, the EU’s unilateral CBAM policy risks creating a self-reinforcing cycle in which regulatory non-compliance leads to trade barriers, further constraining these countries’ development and ability to adapt (Wirdyansyah, 2025). 

The CBAM risks straining trade relations between the EU and its trade partners. In fact, in 2025 Russia requested consultations in the World Trade Organization as a first step towards dispute settlement (Mehling et al., 2025). Scholars note the risk of trade wars and retaliation from trade partners (Smith et al., 2024). Additionally the CBAM may lead to trade diversion and rerouting. In recent years major exporters like China have begun diversifying their export structure toward regions with less stringent regulations, such as Southeast Asia and Africa. Some scholars are now encouraging other countries such as India and Turkey to similarly diversify their export destinations to reduce their reliance on the EU (Li et al., 2026). The injustices arising from the CBAM could therefore harm the EU’s trade relations in the long-term.

What could be done to balance climate justice and effectiveness of the CBAM?

Many of the CBAM’s weaknesses are a consequence of its unilateral design and limited consideration of the needs and capacities of affected third countries (Sagone & Cellura, 2025). Enhancing procedural justice through structured consultation with non-EU stakeholders, particularly from the Global South, could improve the policy’s legitimacy and alignment with the CBDR-RC principle (Smith et al., 2024). This could for instance be done by establishing advisory groups or collaborating with research networks and civil society organizations from the Global South (Janssen, 2025). However, broader participation may slow decision-making and reduce the CBAM’s effectiveness as a rapid mitigation tool (André & Pirlot, 2024). 

Alternatively, the EU could implement a differentiated carbon pricing system based on factors such as development level, historical responsibility and economic capacity of trade partners. Potentially, this could even be combined with targeted exemptions for the most vulnerable countries (Lowe, 2021). While this could improve the policy’s fairness and international acceptance, it risks reducing the environmental effectiveness by weakening the CBAMs’ coverage and increasing the risk of carbon leakage (Magacho et al., 2022). Furthermore, this model would place high administrative and monitoring costs on the EU and require transparent monitoring and reporting capacities that many developing countries currently lack (Beaufils et al., 2023; Wirdyansyah 2025).

A perhaps better policy option would be to reallocate CBAM revenues to support decarbonization efforts in exporting countries. Under the EU’s current proposal for the 2028-2034 EU budget, revenues generated from CBAM are earmarked as a new EU “own resource” going to the EU budget (European Commission, 2025). Some criticise this, claiming it makes the CBAM a policy that “taxes the poor to finance the rich” (Corvino, 2025). 

The EU has made great progress in its decarbonisation efforts in recent decades. This has been driven largely by national-level investments of approximately €120 billion annually. Compared to this, the projected CBAM revenues of €1.5 billion – €9 billion annually are modest and thus not necessarily essential for the EU’s green transition (Cammeo et al., 2025). By contrast, many developing countries lack the resources to decarbonise independently (Sagone & Cellura, 2025) . 

Fiscal reallocation could help address this injustice and make global decarbonisation efforts more feasible. However, fiscal reallocation alone would be insufficient, as many developing countries lack monitoring, reporting, and verification systems required to measure emissions and implement effective decarbonisation policies. Revenue reallocation should therefore be accompanied by technology transfers and institutional capacity building to ensure efficient use of funds (Amendola, 2025).

Redirecting CBAM revenues could enhance global mitigation outcomes and address climate justice concerns in line with the CBDR-RC principle, without undermining the EU’s climate objectives (Sun et al., 2025). Accordingly, this solution seems to be the most effective and equitable policy choice.

What is the EU willing to do and currently doing?

The CBAM regulation explicitly acknowledges that the EU should provide technical assistance to developing countries and least developed countries (LDCs) to support the implementation of  domestic carbon pricing mechanisms in third countries in accordance with the CBAM (Regulation (EU) 2023/956, para. 71). According to paragraph 73 of the regulation, the Union should continue to provide financial support through the EU budget for climate mitigation and adaptation in LDCs. 

Following the CBAM’s transitional phase, the European Commission published an initial impact assessment report in December 2025, concluding that the impact of the CBAM on developing countries and LDCs is macroeconomically negligible. On this basis, the European Commission justified the full implementation of the CBAM from 1 January 2026. 

Regarding fiscal reallocation, the EU argues that earmarking CBAM revenues to assist with the implementation of decarbonisation policies in third countries is unnecessary, given the EU’s existing range of initiatives (Taxation and Customs Union, 2026). In 2024, the EU contributed €31.7 billion to support developing countries in climate change mitigation and adaptation efforts (European Council, 2026).

Taken together, these measures indicate that the EU recognises the disproportionate challenges faced by developing countries in adapting to green policies and is already supporting their decarbonisation efforts through multiple channels. However, the link between the CBAM’s economic impact on developing countries and the EU’s financial support is not made explicit (Corvino, 2025). Consequently, developing countries seem to view the CBAM as a unilateral measure that imposes costs without corresponding benefits, weakening its international acceptance (Mehling et al., 2025). 

Conclusion

The CBAM allows the EU to leverage its market power to promote global decarbonisation. While the policy has a strong potential to mitigate climate change, it also risks disproportionately affecting countries that are least responsible for the climate crisis and have limited capacity to adapt. As a result, the CBAM has faced strong opposition from international stakeholders.

One way to address these justice concerns could be to reallocate CBAM revenue to affected third countries, and provide them with the technical assistance needed to support the development of domestic decarbonisation policies. At present, CBAM revenues flow into the EU budget. This is something that has attracted considerable criticism. However, it should be acknowledged that the EU provides substantial funding to international climate finance, meaning that CBAM revenues are indirectly supporting decarbonisation efforts abroad.

Nevertheless, the lack of a clear and explicit link between the CBAM revenues and existing climate finance mechanisms may undermine this argument, particularly for countries that primarily experience the policy as a tariff on economically vital exports. Establishing a dedicated fund through which CBAM revenues are transparently redistributed to developing countries and LDC could help reduce opposition allowing the policy to live up to its potential for climate mitigation. 

With the CBAM only fully implemented this month, its long-term impact remains to be seen. What is clear, however, is that sustained communication and cooperation between all affected stakeholders will be essential to address justice concerns and ensure that the EU’s CBAM realises its full potential.

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