The European Green Deal aims to make Europe the world's first climate-neutral continent by 2050. As part of this strategy, the European Commission has proposed the Carbon Border Adjustment Mechanism (CBAM) to prevent carbon leakage and support the EU's climate goals. CBAM is a border tax that requires companies importing goods into the EU to purchase certificates representing the emissions generated during production. This mechanism will significantly impact countries, particularly developing and least developed countries (LDCs), raising concerns about climate justice.

CBAM was introduced as part of the Fit for 55 package, which targets a 55% reduction in the EU's emissions by 2030. CBAM is designed to discourage EU businesses from relocating and to incentivize international partners to align with the EU's climate goals. Initially, the mechanism covers five emissions-intensive trade-exposed (EITE) industries, including cement, fertilizers, iron and steel, aluminum, and electricity. Its scope is likely to be extended to other carbon-emitting industries in the future.

Analyzing the impact of CBAM on third countries is complex due to uncertainties in its design and scope. While countries like Russia, China, and Turkey are significant exporters of CBAM goods to the EU, their vulnerability to the mechanism depends on their dependence on exports and overall trade volume. Low-income countries, LDCs, and developing nations in the EU's neighborhood, such as Mozambique, Bosnia, and Herzegovina, Ukraine, and Serbia, are among the most affected by CBAM. Even countries with low export volume can experience significant socio-economic consequences due to the disruption of key employment sectors.

The carbon intensity of a country's economy also plays a crucial role in determining vulnerability. Countries with high carbon intensity, such as Ukraine, Iran, Kazakhstan, Bosnia and Herzegovina, and Vietnam, may face a higher tax burden and reduced competitiveness under CBAM. In contrast, countries with lower carbon intensity can maintain competitiveness in their exports. For instance, China and Ukraine, which have higher carbon emissions per unit of steel produced, face a disadvantage compared to India, Turkey, and the United States, which rely on more environmentally friendly production methods.

The affected countries' statistical, monitoring, and reporting capacities are essential factors influencing their competitiveness. Countries with robust infrastructure and statistical capacity have an advantage in complying with reporting requirements. In contrast, those with low capacities may struggle to meet the demands, potentially increasing the pricing of their exports under CBAM. This poses additional challenges for countries with limited resources and data ecosystems.

CBAM's implementation will have wide-ranging implications for the EU's trade partners, particularly developing nations and LDCs. Understanding the vulnerabilities of these countries and adopting adjustment policies to mitigate negative consequences is crucial. Improving the design of CBAM and considering climate justice principles can contribute to a fair and effective implementation of the mechanism.

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