India and China have expressed concern over the introduction by the European Union of a Carbon Border Adjustment Mechanism (CBAM). This important new policy will take effect on January 1, 2026. The two countries are the world’s largest producers of steel. Even given their decades-long animosities, they have found a surprising area of common ground in their opposition to this little known mechanism. Their joint position raises serious concerns over the potential economic impacts of CBAM on developing countries, especially with regard to the steel industry.
The European Union implemented the CBAM as one of many measures in its global leadership role on fighting carbon leakage. This new mechanism better ensures a level playing field for EU industries. It puts imported goods subject to the same carbon pricing that domestic production will have to face. By requiring importers to purchase carbon credits to offset emissions from imported goods, the EU hopes to encourage environmentally sustainable practices globally. India and China are deeply concerned that these provisions will harm their coal-fire, carbon-intensive steel industries.
At the latest round of United Nations climate negotiations, representatives from both countries doubled down on their shared animosity toward the CBAM. They warned them of the long term impacts those rules might have on their economies. They pointed out that a major share of their production of steel depends on coal-fired electrical manufacturing facilities. Being large producers of steel, China, India, and Russia would be particularly hard hit by CBAM. Worst of all, it would increase their operational costs and stifle their potential economic development.
Beyond the immediate reaction to introduction of CBAM, trading partners have expressed concern about its impact on the future of global trade more broadly. Many critics contend that the new mechanism would disproportionately impact countries with the most carbon-intensive production processes. This will likely become an obstacle that makes international collaboration on climate change projects impossible. For one, both India and China are concerned that these trade barriers will upend their supply chains. Furthermore, they contend that this would escalate the risk of conflict in global economic bullying.
Both countries are leading the charge for a more equitable approach to addressing climate change. They are seeking to make sure that the economic realities faced by developing countries are a part of these efforts. They claim that in their pursuit of climate goals, measures such as CBAM shouldn’t place an unwarranted economic burden on them.
As the EU aims to reduce its greenhouse gas emissions by 55% by 2030, the ongoing dialogue surrounding CBAM will be crucial in shaping future trade relations. Every country faces the tension between strong environmental policy and political, or real, economic suicide. They work hard at managing the balancing act of honouring their climate action obligations, without undermining their industries.