Climate change does not stop at national borders. A tonne of emissions avoided in one country has the same value to the atmosphere as a tonne avoided anywhere else. That simple fact should shape the way governments approach climate-related trade measures.
The European Union’s Carbon Border Adjustment Mechanism, known as CBAM, has a legitimate purpose. It seeks to ensure that European producers acting on emissions are not placed at a disadvantage against imports made under less stringent carbon rules. It is also intended to prevent high-emitting production from simply moving beyond Europe’s borders.
Its success, however, will depend on what it achieves beyond Europe.
For exporters in developing economies, the barriers to lower-carbon production are often practical and financial. Clean electricity may be limited or unreliable. Investment capital can be expensive. Industrial facilities may need modernisation, while systems for measuring and reporting emissions are still developing. These are difficult conditions in which to absorb new compliance costs.
If CBAM is seen only as the price of entering the European market, it risks being treated as a tariff under another name. That would create friction between trading partners and do little to speed up the wider transition that climate action requires.
There is a more useful direction available. CBAM could help mobilise investment in cleaner production, rather than simply collecting payment at the border.
The EU recently recognised a role for high-quality international credits in meeting its post-2030 climate objectives. The next question is how those credits should be integrated in a way that supports both environmental integrity and sustainable development.
Within carefully defined limits, high-integrity international carbon credits could provide an additional source of transition finance. Carbon finance can improve the economic viability of investments that reduce emissions but remain difficult to fund through conventional sources alone. It can help exporters and their European customers support verified emissions reductions while investments in cleaner factories, supply chains, energy systems and enabling infrastructure are put in place.
Article 6 of the Paris Agreement provides an important framework for this cooperation. It enables countries to authorise and transparently account for emissions reductions transferred internationally, helping to prevent double counting while aligning carbon finance with national climate priorities. Used effectively, Article 6 can create a bridge between international demand for high-integrity credits and the investment needs of developing economies.
This would require firm guardrails. Direct reductions from industrial processes and electricity use must remain central to the transition. Carbon credits should not replace companies’ own decarbonisation efforts. Any credits recognised under CBAM or the EU’s wider climate framework should represent genuine and additional emissions reductions; be independently verified and transparently tracked; avoid double counting; and meet robust social and environmental safeguards.
The detailed criteria for eligible international credits have not yet been defined. This creates an opportunity to develop practical rules that maintain the highest standards of environmental integrity while enabling carbon finance to reach the countries and sectors where the transition is hardest to fund.
Done well, this approach could channel private capital into areas central to long-term decarbonisation: renewable power, energy efficiency, cleaner industrial processes, distributed energy and stronger electricity networks. It could also help countries build the institutional capacity, emissions data and project pipelines required to participate effectively in international carbon markets.
The wider development context matters. Nearly 600 million people in Africa still lack access to electricity. Countries need to lower emissions while also expanding access to reliable, affordable energy and creating the industrial base on which jobs and prosperity depend. These aims should reinforce one another.
Europe has an opportunity to show that climate-linked trade measures can support that shared agenda. A CBAM that recognises genuine action, supports investment and creates credible pathways for exporters to decarbonise would be stronger climate policy. It would also be more likely to earn the cooperation needed for it to work.
As the EU develops detailed rules for the use of high-quality international credits within its wider climate framework, there is an opportunity to ensure those rules strengthen both industrial competitiveness and sustainable development.
Trade policy cannot solve the energy transition by itself. It can, though, help direct finance towards the places where cleaner growth is hardest to fund and most urgently needed.