(Is it fair for Developing Countries to reap what the developed countries have been sowing?) 

On January 1^st 2026, the European Union (hereinafter referred to as ‘EU’) officially started the definitive period of its Carbon Border Adjustment Mechanism (hereinafter referred to as ‘CBAM’), the world’s first carbon cross-border tax which will impose levies on imports of steel, aluminium, cement, fertilisers, electricity, and hydrogen based on their embedded greenhouse gas emissions. It has been disguised as a measure which aims to prevent “carbon leakage” and level the playing field for EU producers subject to the EU Emissions Trading System (ETS). However, the CBAM has been met with widespread criticism from developing countries. The Finance Minister of India, Nirmala Sitharaman, has called it a “trade barrier.” At COP30, India had, on behalf of BASIC and the LMDC Group, opposed the imposition of CBAM.

This opposition to CBAM isn’t uncalled for as it comes from a valid place of concern. The entire structure of this mechanism makes liable those that aren’t really the perpetrators i.e it makes current emission producing countries, most of those developing, pay for the accumulation of environmental damage created by developed countries. This isn’t merely just unfairness but it also violates key principles of International Environmental Law such as the Common but Differentiated Responsibilities and Respective Capabilities (hereinafter referred to as ‘CBDR-RC’). This Article argues the same, that the CBAM in its current form is violative of International Environmental Law and raises key concerns with respect to International Trade Law that the EU has failed to address. 

What exactly is CBAM? 

CBAM essentially requires importers to obtain ‘CBAM certificates’, which would reflect the carbon emissions produced in the production of the imported goods and how much importers would have to pay as per the EU ETS, i.e. the European Union’s Emission Trading System. The current rate is €73 to €77 per metric ton of CO2 emissions. This is the same system under which EU producers pay for their carbon emissions, and it is this need for parity between domestic producers and importers that is the foundation of why CBAM exists. Primarily, the CBAM aims to ensure that a.) Domestic products aren’t at a disadvantage owing to the cheaper alternatives available in the form of imported goods, which are cheaper because they don’t include the tax on carbon emissions and b.) to ensure that producers don’t escape the carbon tax by producing in countries where such a tax doesn’t exist i.e. prevent carbon leakage. 

While, prima facie, the above arguments seems to make sense, it fails to recognise the simple fact that not all countries are in the same position to tackle this carbon leakage nor do they have bear the same level of burden. The EU, itself, implicitly refers to same by offering assistance to developing countries in greening their industries. However, this assistance is vague and largely subject to the EU’s policy and budgeting decisions because these commitments are capped "within the ceiling of the EU's multi-annual financial framework," rather than constituting a binding obligation. On the other hand, under CBAM, financial penalties in the event of non-compliance are clear and certain. 

Equity or Equality? 

The basis for the requirement of differentiated climate obligations isn’t without authority as these obligations are embedded in treaties signed by majority of the nation states. Article 3(1) of the UNFCC 1992 prescribes for parties to ought to protect the climate “on the basis of equity and in accordance with their common but differentiated responsibilities.” Additionally, the preamble of the UNFCC, itself, recognises that “the largest share of historical and current global emissions of greenhouse gases has originated in developed countries.” Furthermore, the widely known Paris Agreement in Article 2.2 purports the implementation of the CBDR-RC “in the light of different national circumstances.”

Moreover, this isn’t just an ideological principle but rather a principle that has practical substance and backing. In the UNFCC’s Bali Action Plan, Bali had in its submissions established the concept of ‘climate debt’ that was owed by developed countries to developing countries. This concept basically entailed that developing countries, who had historically been polluting which had led to the existing mass accumulation of environmental damage, now had the responsibility to compensate developing countries getting the short end of the stick. 

Despite the existence of a plethora of legal backings, for an economic and political entity as large as the EU to come out with such a mechanism that subtly yet distinctly penalises countries for carbon emissions that they cannot help but produce in large amounts owing to their economies still being in a developmental state is blatant coy behaviour that severely undermines fairness, justice and equity. 

This carefully crafted mechanism evidently doesn’t penalise historical emissions. It penalises current production and a type of production that takes places mostly in developing countries. This production is carbon-intensive though not out of indifference but because of colonial remnants of late industrialisation, limited access to green technology, and inadequate climate finance. India’s steel sector still predominantly uses the blast furnace, basic oxygen furnace route, not by choice, but because the infrastructure investment required to shift to electric arc furnaces runs into billions of dollars that firms and governments of a developing-country just don’t have. 

The EU and the United States are the world’s largest scrap producers and they extensively use electric arc furnaces which is a route of steelmaking that emits relatively lesser omissions. Under CBAM, it is ostensible that they will face lower certificate costs. Indian steelmakers use blast furnaces because that is what they can afford at the moment, will face higher costs. Henceforth, CBAM further incorporates technological inequity into trade law i.e. rewarding those who industrialised first (and most dirtily) with the cleaner technologies their wealth later enabled, while penalising those still navigating the same developmental path.

Therefore, it can be said that CBAM asks only “what are your emissions right now?” and penalises accordingly, completely ignoring the big elephant in the room of “How did we get here?”.

The Economic Impact 

The economic impact on developing countries of CBAM is undeniable and striking. India’s total CBAM-exposed exports to the EU exceed EUR 6 billion annually. The Global Trade Research Initiative (GTRI) estimates that Indian exporters may need to cut prices by 15–22% to absorb the tax burden. Modelling by Zero Carbon Analytics estimates total costs to developing countries at USD 10.2 billion, with India and Zimbabwe among the most exposed. A CGE study by CSEP finds that India’s GDP could decline by 0.02–0.03% due to carbon tax revenue outflows to the EU. However, this revenue won’t flow to climate funds but to the EU’s own treasury.

In the instance of aluminium, the situation is particularly stark. Between January 2025 and January 2026, the window in which CBAM transitioned to financial enforcement, India’s unwrought aluminium exports to the EU fell by 41.7%. This clearly demonstrates the impact of the CBAM as it caused a fall in trade flow by nearly 7,779 tonnes in a single year owing to the mandatory carbon costs imposed under CBAM. 

Now another essential question arises which is what exactly will the EU do with these revenues? The European Commission estimates CBAM revenues to reach approximately EUR 9.1 billion annually by the year 2030. These revenues have been set aside to actually settle accounts with borrowing under NextGenerationEU which is Covid recovery package of EU. In a nutshell, exporters of developing countries will pay this carbon tax to fund the financial recovery of the EU post-covid. It is evident, therefore, that the EU has disguised a paycheque to themselves as an effort towards Environmental health by decarbonisation. 

The Centre for Global Development has noted that while the CBAM mentions the EU’s commitment to finance the adjusting of developing countries to the tax, this commitment is merely nominal as it is capped “within the ceiling of the EU’s multi-annual financial framework.” There is no concrete obligation upon the EU to facilitate the easement of developing countries into this new system which only depicts how unfair and unequal it is in nature. 

An Equitable CBAM 

Critics of CBAM don’t have an end goal of completely doing away with the mechanism because that would imply that one should ignore the growing issue of carbon leakage but rather they call for a more equitable structure within it. The crux of the matter is that if the EU is concerned about climate protection and not just industrial competitiveness, then the design of CBAM must change. Several reforms have been suggested by Policy Organisations and Scholars alike. 

Firstly, exemptions should be tied to development status and not just import volume. The EU introduced a mass-based de minimis threshold in October 2025, which exempted importers of under 50 tonnes annually, but a threshold based on volume treats a small Indian steel exporter and an LDC producer alike, regardless of their historical contribution to the climate crisis. What is required is an exemption based on the development status of countries like for LDCs. The EU's official CBAM page itself acknowledges a commitment to "supporting developing countries and LDCs in greening their industries" and yet the Centre for Global Development has noted that this remains a soft political commitment capped within the EU's own budgetary ceiling and not a formal legal protection or obligation.

Secondly, CBAM revenues should be mandatorily set aside for climate adjustment and industrial decarbonisation in developing countries that will be most affected. The Centre for Global Development has argued that, with revenues estimated at a whopping EUR 9.1 billion, the EU ought to commit to increasing its international climate finance rather than merely servicing its own sovereign debt.

Thirdly, there should be a meaningful technology transfer that is proportional with the revenues collected through CBAM. If developing countries are required to pay a premium to sell carbon-intensive goods into the EU, they are entitled with respect to equity, to receive in return the technological means to decarbonise. 

Conclusion

The EU’s CBAM is an intricate device of climate policy, and the concern that it aims to address that carbon leakage could undermine European decarbonisation efforts is admitted to be legitimate. However in its current form, CBAM violates the foundational principle of International Climate Law that those who caused the problem bear the greater burden of fixing it. It aims to fund the EU’s own recovery with these revenues generated, which should be optimised for the purpose they were collected for, i.e., to the countries bearing the cost of compliance. It disadvantages those very industries whose carbon emissions in the present are a result historical underdevelopment and inadequate climate finance.

If the EU is truly genuine in its efforts and commitment to multilateralism and a fair energy transition, it needs to reform CBAM to reflect not only the logic of carbon pricing, but the law of climate equity, which is a law that Europe itself helped to write, at Rio, in Kyoto, and in Paris. The international climate regime was built on the foundational promise that historical responsibility would determine the burden of action. CBAM, in its present form, subtly crushes that promise. Thereafter, until it is reformed to reflect equity and not just efficiency, it will remain more of a paycheque painted in the language of environmental stewardship and less of a just green policy.

*Authored by- Anisha Giri Goswami (3rd year B.A.LL.B (Hons), student at National Law Institute University, Bhopal. Views expressed are personal.