Unilateral Trade Measures - CBAM and Its Compatibility with the Climate Framework

Abstract

This publication examines the EU’s Carbon Border Adjustment Mechanism (CBAM) and its compatibility with international climate and trade law. It finds that CBAM’s legality remains uncertain: the EU can defend it as a measure to prevent carbon leakage and fulfil its climate obligations, while developing countries have credible grounds to challenge its economic effects under the UNFCCC and WTO rules, particularly the most-favoured-nation principle. The publication argues that CBAM’s design conflicts with the principle of common but differentiated responsibilities by shifting decarbonisation costs towards countries with less historical responsibility, financial capacity and access to low-carbon technology. Given the limited prospects for resolving the dispute through the WTO or consensus-based climate negotiations, it recommends pairing CBAM with grant-based climate finance and technology transfers so that Global South producers can decarbonise without increasing debt or indefinitely absorbing the mechanism's costs.