This is an extract from a recent briefing “Safeguarding the EU’s CBAM to strengthen global partnerships” published by E3G.

In an increasingly fragile geopolitical context, the EU cannot risk the CBAM undermining key trade partnerships. The measure has faced resistance from the outset, but recent developments have raised the stakes. Continued criticism of the CBAM from EU trade partners calls for a reassessment of both the instrument itself and the supporting diplomatic strategy. As the CBAM review legislative process advances and major diplomatic milestones approach, EU policymakers have an opportunity to strengthen trade partner relations through more effective carbon pricing diplomacy. A robust CBAM, embedded within a coherent international cooperation strategy, will be essential to advancing the EU’s economic, geopolitical and decarbonisation goals.

The EU’s Carbon Border Adjustment Mechanism (CBAM) entered into force on 1 January 2026, despite opposition from trade partners and concerns from European industry over higher costs and administrative burdens. The decision to push ahead with the scheme marked a major commitment to climate policy from the EU, even as other initiatives have been scaled back in recent years. But continued criticism of the CBAM risks eroding trust in the EU as a reliable trade partner and therefore poses a threat to its global agenda. If not tackled head-on, the continued diplomatic challenge that the CBAM poses could disrupt the EU’s heightened efforts to forge strategic partnerships to diversify trade relations and advance security, competitiveness and resilience aims. At the same time, proposed substantial revisions to the CBAM which primarily respond to concerns from EU industrial stakeholders will have considerable consequences for how the tool impacts trade partners. This risks stoking further tensions. 

Trade partners’ reactions to the CBAM have been diverse, depending on their political and economic interests. In some cases, there is strong evidence that it has incentivised countries to adopt their own carbon pricing schemes. In others, it has prompted pushback and damaged bilateral relations. The EU therefore needs to take a flexible approach to CBAM diplomacy, tailoring responses to the needs of different trade partners. India is an example of where the EU has successfully mitigated CBAM tensions during the course of FTA negotiations, by introducing a broad cooperation package on carbon pricing. In the context of the current legislative process to agree substantial revisions to the CBAM, and with key diplomatic moments on the horizon, the EU has an opportunity to reset its approach to CBAM diplomacy in 2026. This will ensure that the CBAM supports and strengthens the EU’s international partnerships, rather than obstructing them. 

State of play

The CBAM is a necessary tool to maintain the pace of the EU’s decarbonisation – both domestically and through its overseas carbon footprint – and sustain industrial production in the EU. By removing any competitive advantage for companies in relocating production overseas to avoid higher emissions standards, it preserves a credible long-term price signal for EU industry as free allocations under the EU’s Emissions Trading System (ETS) are gradually phased out. Without a CBAM, domestic decarbonisation efforts could be undermined, and EU industry would lose competitiveness as emissions would shift to different jurisdictions. However, international criticism of the CBAM risks undermining its resilience. This is not only a worrying sign for global climate ambition, but also has wider implications for the EU’s geopolitical and trade relations. It was found that, with some targeted tweaks and adjustments, the EU could significantly improve its international and diplomatic strategy with respect to the CBAM. These improvements could give a substantial boost to the EU’s international partnerships at a time of rising global tensions, and would preserve the integrity of the CBAM mission.

Political context in Europe and the world brings greater complexity

The world looks considerably different to when the EU first announced its intention to introduce a CBAM in 2019. The political context in Europe has shifted. The CBAM proposal was introduced as a landmark piece of legislation under the European Green Deal, at a time where there was a strong political backing for climate action in Europe. By contrast, the current European Commission mandate has been characterized by strong pushback on climate ambition and a focus on deregulation, with competitiveness, security and resilience rising to the top of the political agenda. This shift has impacted the CBAM by shaping how policymakers have approached revisions and implementation, including a substantial simplification of the measure introduced in 2025.

A key example of the fallout from these political shifts on the CBAM is the upcoming revision of the EU Emission Trading System (proposal expected July 2026). In the context of the energy price spike in the wake of the Iran crisis, there has been immense pressure on policymakers to dilute the ETS and bring down carbon costs. As CBAM is designed to mirror the EU ETS, this could have significant consequences for the final design of the measure. This domestic political context has introduced the risk that the CBAM is interpreted by external partners primarily as a tool for boosting EU competitiveness, rather than serving its original purpose of addressing carbon leakage and raising climate ambition. 

This is unfolding at a time when the global trading system is subject to unprecedented tensions, with escalating tariffs and supply chain disruptions contributing to widespread uncertainty and further complicating the politics of carbon border measures. In this context, regulatory tools such as the CBAM can be interpreted as additional trade distorting interventions by external partners. Volatile geopolitical dynamics are also reinforcing the importance of economic security and trade diversification, which makes bilateral partnerships an increasingly important tool for the EU to achieve its objectives. In this context, the EU has been strengthening its trade defence toolkit, including tightening its steel safeguards and introducing “Made in EU” local content requirements for public procurement through the Industrial Accelerator Act. These measures have been well received within Europe, but they risk stoking tensions with trade partners as the EU moves towards greater protectionism. This underlines the need to reposition the CBAM as a bridge for cooperation, so that the backlash against unilateral measures does not escalate.

Revisions to the CBAM risk increasing the burden on trade partners

The revision package presented in December 2025 contained three important changes which – though in some cases necessary for the proper functioning of the CBAM – could have challenging implications for EU trade partners These stand in contrast to the significant reduction in administrative burden that should result from the “de minimis” mass-based annual threshold of 50 tonnes of CBAM goods introduced in 2025, which has substantially reduced the number of economic operators subject to CBAM obligations. The international implications of these ongoing amendments should be given appropriate consideration in the upcoming legislative process, and going forward EU trade partners should be promptly and comprehensively notified of any further changes to the CBAM.

A further change that may alleviate the burden on trade partners is a recently published proposal setting out rules for how the CBAM can incorporate carbon pricing systems in third countries, including to account for international carbon credits. This is a key update to support policy ambition in third countries and ensure their domestic decarbonisation efforts are factored into the equation. However, the lack of clarity on this to date has been criticised on the basis that it has created uncertainty for trade partners over whether to introduce carbon pricing and in what form. The inclusion of credits is also likely to be controversial given challenges around ensuring the quality of credits and the risk of creating perverse environmental incentives.

Evaluating trade partner responses to the CBAM

The introduction of the CBAM has prompted a variety of reactions from the EU’s trade partners. In some cases, there is evidence that the CBAM has encouraged other countries to adopt their own carbon pricing schemes. In other cases, it has prompted extensive debate in international institutions over the use of unilateral measures. The extent to which the CBAM impacts a third country will depend on its economic profile, including export exposure to the EU in CBAM-affected sectors and the fiscal resources available to implement the required regulation. However, a country’s response to the CBAM will also depend on its political priorities. This demonstrates the challenge the EU faces in formulating a coherent diplomatic response. There is no “one size fits all” approach. The EU therefore needs a flexible approach to CBAM diplomacy which can be tailored to different trade partners. 

The EU’s response to CBAM concerns from trade partners

How to manage trade partners’ responses to the CBAM is not a new dilemma; the Commission and EU Member States have already been taking remedial action to alleviate criticism, both at the bilateral and multilateral level. But rising geopolitical instability places this predicament under the spotlight: as trade patterns reconfigure in response to the shifting world order, the depth and endurance of the EU’s trade partnerships become increasingly important to delivering on both its domestic and international objectives. The EU will need to go further than before to demonstrate that it is dependable and that it can offer a more compelling partnership proposal than its global competitors.

What happens next

2026 is a crucial year for the EU to advance a more comprehensive diplomatic agenda on the CBAM to support its global partnerships. The EU has built an impressive toolkit for international cooperation on carbon pricing, but the patchwork of positive examples is still overshadowed by continued CBAM criticism. Addressing this now will ensure that trade partner concerns do not hinder progress in EU bilateral relationships and multilateral spaces further down the line. It is recommended that, by repositioning the CBAM as a central component of a coherent trade and climate toolkit, the EU can strengthen its global relationships, sustain its long-term industrial decarbonisation pathway and reinforce its role as a trusted partner.

Opportunities to strengthen the EU’s CBAM diplomacy:

Improve support for developing countries 

More can be done to address the disproportionate impact of the EU CBAM on developing countries. This should be a diplomatic priority for the EU in order to reestablish itself as a reliable and collaborative partner, particularly given many developing country trading relationships will be vital to securing resilient EU supply chains for the climate transition. The EU should commit to systematically monitoring and assessing the distributional impacts of the CBAM and its upcoming revisions on low- and middle-income countries. This data should inform decision-making within the Commission to deepen trade cooperation activities with least developed countries. Positioning the CBAM as a key consideration in future EU trade relations will not only deliver investment and development benefits to affected countries, but will also present the CBAM as a central component of the EU’s progressive trade and climate agenda, rather than as a standalone punitive measure. 

The EU should earmark at least 25% of CBAM revenues to finance an increased support package for least developed countries, mirroring the functioning of the Temporary Decarbonisation Fund (TDF). Although recycling CBAM revenues for climate finance has proved politically unpopular, more innovative methods should be explored to utilise the funds for both EU and global benefit. The CBAM can also be leveraged as an export and investment opportunity for developing countries to build resilient low-carbon economies. It allows them to secure the competitiveness of their exports to the EU by building lead markets, anchoring clean value chains and creating green export corridors. The EU should prioritise new bilateral trade deals, such as Clean Trade and Investment Partnerships (CTIPs), with CBAM-affected countries, to support decarbonisation both at home and abroad. Using CBAM revenues to finance these initiatives would deliver mutually beneficial outcomes to both the EU and its trade partners. The CBAM should be an enabler, rather than a barrier, for this cooperation.

Advance regulatory coordination

As the CBAM model gains traction in other parts of the world, with the UK and Australia expected to introduce similar measures, the EU should cement its role as a pathfinder in shaping international cooperation on carbon pricing and border adjustments. This should include taking a leading role in international initiatives – including the Climate Club, IFCMA and IFCCT – to facilitate the interoperability of carbon pricing systems, for example by establishing accredited verifiers and accounting methodologies for CBAM reporting. This would help to reduce the CBAM’s regulatory burden on EU trade partners and progress the current debate over the use of unilateral measures in venues such as the WTO and UNFCCC. 

By refocusing the attention of third countries on the potential forthcoming coordination challenges arising from a global patchwork of CBAM schemes, the EU can continue to champion climate progress and position itself as a progressive and cooperative partner. This would also complement the EU’s existing work to coordinate emissions trading systems through initiatives such as the Florence Process, which seeks to exchange knowledge and foster cooperation on carbon markets worldwide. To further advance these efforts, the EU could consider collaborating with like-minded partners such as the UK to create an interconnected global network of CBAMs. This could help to build political momentum around the central role carbon pricing will continue to play in international cooperation. Incorporating regulatory coordination on CBAM into new trade partnerships should further help to build international support for the model.

Enhance CBAM communications

The continued negative reception to the CBAM internationally suggests that a revised strategy for engaging with trade partners would be timely. While the EU already conducts extensive engagement at both the bilateral and multilateral level – including policy briefs, diplomatic missions and training exercises – these efforts could be more effectively harnessed as part of a coordinated CBAM communications strategy. Relatively low-cost solutions to improve existing communications could include publishing concise information sheets, improving online resources to reach wider audiences, and hosting participatory workshops tailored to specific country contexts. These should set out the EU’s offer on technical assistance and capacity-building, provide proactive updates to trade partners on any regulatory changes to the measure, and amplify the benefits of decarbonisation to remain competitive in the EU market. This activity should be streamlined in a coordinated manner across EU institutions, with the 

EU’s Task Force for International Carbon Pricing and Markets Diplomacy providing technical expertise, and the EEAS centring positive CBAM communications in existing diplomacy initiatives. As the EU’s wider trade and industrial policy toolkit becomes increasingly defensive due to evolving geopolitical pressures, the CBAM has been caught up in debates over competitiveness and is increasingly interpreted as a punitive measure. The EU must take a more assertive approach to avoid any deviation from the CBAM’s stated climate rationale, so as not to undermine existing communication and support efforts. More should also be done to emphasise the focus on the CBAM in the EU’s “Global Europe” spending, which includes a 30% target for spending on climate and the environment, and to harness this effectively as a diplomatic tool. Clearer guidelines on how this money will be used to support decarbonisation in developing countries would provide certainty and demonstrate that the EU is taking action to address the concerns raised to date.

Access the briefing here