Other Countries' Carbon Border Measures
CBAM as a catalyst
The EU is not the only jurisdiction exploring carbon border adjustment. CBAM has triggered a wave of policy discussions and legislative proposals in other major economies, each with different designs and motivations. Understanding this emerging global landscape is crucial for companies with complex, multi-jurisdictional supply chains and for policymakers assessing whether a globally coordinated approach to carbon border pricing is feasible.
Why Other Countries Are Considering Similar Measures
The EU's CBAM has created a powerful demonstration effect. It shows that a major economy can implement a carbon border measure without (so far) triggering formal WTO disputes, and that it can be designed in a way that provides genuine incentives for decarbonisation rather than simply raising trade barriers. Two distinct motivations are driving other countries' interest:
- Competitiveness protection: If the EU charges CBAM on imports while EU exports face no equivalent carbon cost in other markets, EU exporters in CBAM sectors could be disadvantaged relative to their competitors at home. Other jurisdictions with ambitious carbon pricing worry about the same dynamic, pushing them toward their own border carbon adjustments.
- Revenue generation: Carbon border measures collect revenue from foreign producers selling into a jurisdiction. As climate financing needs grow, this revenue stream is attracting policy interest beyond its environmental justification.
The United Kingdom's Position
The United Kingdom operates its own ETS (UK ETS), which was established following Brexit and covers broadly the same sectors as the EU ETS. The UK government has been consulting on a UK Carbon Border Adjustment Mechanism since 2022, with proposals to implement a scheme modelled closely on the EU CBAM. The UK CBAM, if implemented on the proposed timeline, would enter its own transitional/reporting phase and then a definitive period.
A closely aligned UK CBAM would significantly reduce trade friction between the EU and UK in CBAM-covered goods, as both markets would impose comparable carbon border costs. Divergence, however, would create asymmetric compliance burdens for companies trading across the Channel.
Canada's Carbon Leakage Policy Landscape
Canada operates a federal carbon pricing backstop (Output-Based Pricing System, OBPS) covering emissions-intensive trade-exposed (EITE) industries, combined with a consumer carbon tax. Canada has been studying carbon border adjustment as a complement to the OBPS, particularly in sectors like steel, aluminium, and cement that face competition from lower-carbon-cost jurisdictions.
Canadian EITE facilities currently receive free output-based allocations that limit their effective carbon cost. The question for Canadian policymakers is whether to complement this with an import-side border measure, or to rely on trade agreement negotiations and mutual recognition of carbon pricing to manage competitiveness concerns.
Analogy: A carbon floor race rather than a carbon race to the bottom
Carbon border measures have the potential to create a "race to the top" on carbon pricing rather than the "race to the bottom" that carbon leakage enables. If the major importing economies (EU, UK, US, Canada) all impose carbon border costs, producers in any country face a carbon cost signal to access global markets. This dynamic incentivises the adoption of domestic carbon pricing by exporting countries as a means of "internalising" the border cost rather than paying it to foreign governments.
The United States: A Complex Patchwork
The United States does not currently have a federal carbon price or a federal carbon border adjustment mechanism. However, several proposals have been tabled in Congress, most notably the Clean Competition Act and earlier versions of border carbon adjustment legislation attached to reconciliation packages. These proposals have faced significant political obstacles.
Instead of a formal CBAM-style mechanism, the US has used trade policy instruments such as Section 232 tariffs (originally imposed on steel and aluminium for national security reasons) and the Inflation Reduction Act's manufacturing incentives to achieve some degree of industrial policy alignment. The IRA's clean energy credits in particular incentivise low-carbon production without directly imposing a border cost on high-carbon imports.
Emerging and Developing Countries: Building Carbon Markets
The World Bank's State and Trends of Carbon Pricing (2024) report documents a significant acceleration in carbon market development in emerging economies, driven at least in part by CBAM. Countries including Turkey, India, Vietnam, Brazil, and Indonesia have either launched or significantly advanced domestic carbon pricing initiatives since CBAM was announced.
| Country | Carbon Pricing Development | CBAM Connection |
|---|---|---|
| Turkey | National ETS launched (pilot phase, industry sector) | Directly motivated by CBAM exposure in steel and cement |
| India | Carbon Credit Trading Scheme (CCTS) under development | Partly driven by CBAM, partly by domestic climate policy |
| Brazil | Federal ETS legislation passed (2023) | Global momentum; Brazil's exports to EU not heavily CBAM-exposed |
| Vietnam | Domestic ETS pilot (power and steel) | Steel exports to EU create direct CBAM incentive |
| Indonesia | Carbon tax implemented (coal plants) | Limited direct CBAM exposure; broader climate policy driver |
Risks of Fragmentation
While CBAM has catalysed carbon pricing development globally, a world of many different, non-interoperable carbon border measures also risks significant fragmentation of the global trading system. If the EU, UK, Canada, and eventually the US each develop their own CBAM designs with different sector coverage, different emissions accounting methodologies, and different deduction rules for third-country carbon prices, companies operating across multiple markets will face an extremely complex compliance landscape.
The G7 has explored the concept of a "Climate Club" in which member countries agree to mutual recognition of carbon pricing systems and common standards for carbon border adjustments, but no formal agreement has yet emerged. The OECD's work on carbon pricing inclusiveness and international tax coordination may eventually provide a framework for harmonising carbon border measures.
Example: A Turkish steel company navigating multiple carbon costs
A Turkish steelmaker exports to both the EU and the UK. The company falls under Turkey's new ETS, paying a carbon cost domestically. Exports to the EU trigger a CBAM charge, partially offset by the Turkish ETS price paid (deduction available). Exports to the UK would face a UK CBAM charge once implemented, with the same Turkish ETS cost potentially deductible. The Turkish mill must track its carbon costs and embedded emission intensities across all production runs, maintain separate documentation for EU CBAM and UK CBAM purposes, and plan its pricing and investment strategy based on the trajectory of carbon costs in all three jurisdictions simultaneously.
Some economists and international lawyers have argued for a multilateral approach to carbon border adjustment, negotiated within the WTO or in a dedicated climate-trade forum. A multilateral instrument would avoid the fragmentation risk, resolve WTO compatibility concerns, and create a level playing field globally. However, the political obstacles are formidable: any multilateral agreement would require consensus among countries with vastly different carbon pricing ambitions, economic interests, and historical responsibilities for cumulative emissions.
The most likely near-term outcome is continued proliferation of national or regional carbon border measures, with gradual moves toward bilateral or plurilateral mutual recognition agreements between jurisdictions with comparable carbon pricing systems, similar to how the EU ETS and Swiss ETS were formally linked in 2020.
Key Takeaways
- 1CBAM has catalysed carbon border adjustment discussions in the UK, Canada, and the US, as well as accelerating domestic carbon market development in Turkey, India, Brazil, Vietnam, and Indonesia
- 2The UK is developing a closely aligned UK CBAM that could reduce trade friction for EU-UK goods in CBAM sectors
- 3The US does not yet have a federal carbon price or CBAM-style mechanism, relying instead on trade and industrial policy instruments like Section 232 tariffs and IRA incentives
- 4A proliferation of non-interoperable national carbon border measures risks creating significant compliance complexity for multinational supply chains
- 5No multilateral carbon border framework currently exists, though the G7 Climate Club concept and OECD coordination work represent early steps toward international harmonisation