“CBAM” may not have entered the Arabic language yet, but it soon will. No, it is not the name of a new virus. It is the innocuous-looking abbreviation for another one of the unilateral blights afflicting international trade these days. Its detrimental consequences will, as always, be dismissed as “unintended” by its authors, even though what is actually intended is no less harmful.
CBAM stands for the Carbon Border Adjustment Mechanism, which the European Union will soon implement, in full and unilaterally and without having negotiated with or even consulted its trading partners before its announcement. It will also go into effect without having been submitted to any form of assessment within the framework of the World Trade Organisation (WTO).
Starting in January 2026, the EU will subject imports from six key sectors to trade restrictions. Importers of carbon-intensive goods will be required to purchase “carbon certificates” equivalent to the carbon cost borne by locally produced goods in Europe. This additional cost, which will be passed backwards along the supply chain, is why CBAM will become an oft-repeated term among producers and exporters in the six targeted sectors: iron and steel, aluminium, cement, electricity, fertilisers, and hydrogen.
But this is a “safeguard” against climate change, a means to “level the playing field” and ensure “fair competition” between environmentally “compliant” European producers and non-European competitors, and to “incentivise” the latter to transition to proper green economy standards, some might claim. What these claims do not realise, or choose to ignore, is that there already exist internationally agreed-upon procedures, reached through arduous negotiations, for a just transition in energy use under the UN Framework Convention on Climate Change (UNFCCC).
It is astounding how the international community agrees on a path forward within a multilateral framework endorsed by global climate summits, only for the agreed-upon arrangements to be breached by unilateral measures taken by certain parties. Moreover, those parties claim their CBAM measures are compatible with WTO rules and principles, yet we have seen no official WTO statement confirming or refuting the self-attested compatibility.
The WTO has not announced that examined the CBAM implications in any detail. Nor can it determine harm until after it has occurred and been demonstrated, by which time the damage will have been done and the producers, exporters, and the economies of developing countries will have borne the costs.
Given its current design, methods of implementation, and how its revenues will go straight into the EU budget – to be spent on EU producers at the expense of producers in developing countries – CBAM will lead to further fragmentation of international trade, more disputes and acrimony, and deeper disparity between trading partners.
The weaker side with the least resilience and fewest resources will end up shouldering additional burdens. The most immediate will be the costs of the added disclosure requirements which, while formally borne by European importers, will inevitably be shunted onto their suppliers in developing countries.
Even greater costs will result from the rapid production changes being forced upon exporters, entailing hasty and unplanned exits from existing operations and leading to losses of jobs and capital. In view of the limited opportunities for domestic financial support in developing countries, whose budgets are already severely constrained, and given the decline in concessional external financing, the obstacles to an orderly structural transformation are growing. In practise, the “just energy transition” is becoming the missing provision in international agreements.
The debate on this subject has been greatly enriched by the Nobel Prize winning economist Esther Duflo whose work on what she has termed the “moral debt” of the developed economies shows how these continue to bear the bulk of the responsibility for the climate crisis through emissions that remain above critical thresholds. Her studies demonstrate that while certain production patterns in the industrially advanced countries have changed, their consumption patterns remain largely the same. Effectively, they have merely outsourced their carbon emissions, relocating polluting production abroad with labour is cheaper, while continuing to consume its products.
With the CBAM, they are now effectively imposing tariffs – albeit under a euphemistic rubric – on those products and using the proceeds to bolster their own economies.
A working paper published last month by a group of International Monetary Fund (IMF) experts titled “Macroeconomic Exposure to the EU’s Carbon Border Adjustment Mechanism: The Case of the Middle East and Central Asia” revealed some alarming figures. It found that while the CBAM’s average negative effect on that region in terms of its GDP may seem very modest, the impacts on the targeted sectors – iron and steel, fertilisers, and cement – will amount to an approximately 14 per cent surcharge on their exports.
In an article appearing in Project Syndicate in June, the executive secretaries of the two UN regional economic commissions concerned with the Arab and African regions, and this author, appealed for an urgent and comprehensive review of the CBAM before its implementation. Under the title “Rethinking Europe’s Carbon Border Adjustment Mechanism,” we argued that rather than rushing to impose what will become just another divisive international levy that undermines the principles of a just energy transition, the EU should engage in serious consultations on that mechanism’s foundations, its methods for calculating its imposed charges in the absence of an agreed carbon price per ton, and ways to promote technological cooperation and effective financing to reduce emissions in these sectors.
It is also important to reconsider how revenues are generated and allocated. What are the legal and moral ramifications of a mechanism that allows importing countries to retain these revenues for their own use? This question becomes all the more pressing given that it is not yet feasible for many developing countries to effectively impose their own carbon taxes since their carbon pricing markets and regulatory systems remain undeveloped.
Moreover, the carbon price per ton in the EU is more than ten times higher than its average price in the Arab and African countries. How is it possible to arrive at a fair carbon price or a cross-border carbon tax equivalence under such divergent conditions?
During a recent visit to Brazil for its Climate Week and to attend meetings with representatives of the incoming presidency of the 30th UN Climate Summit (COP30) in November, I suggested that they convene a meeting bringing the EU together with the African Union, other developing-country groupings, and their industrial representatives, and with the participation of the UNFCCC Secretariat and the WTO.
That meeting should not adjourn until its participants had reached a binding resolution to the CBAM question, one that carefully revises and realigns that mechanism within a genuinely equitable multilateral framework.
It is time to halt the fragmentation of the global economy. It is time to stop invoking the real crisis of climate change as a fig leaf in order to undermine the principles of competition, efficiency, and fairness.
This article also appears in Arabic in Wednesday’s edition of Asharq Al-Awsat.
* A version of this article appears in print in the 9 October, 2025 edition of Al-Ahram Weekly
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