EU’s carbon tax is unlikely to fix global warming. It will make global cooperation on climate change impossible

In a sharply worded and coordinated diplomatic pushback, the BRICS nations — Brazil, Russia, India, China and South Africa — have united to condemn the European Union’s Carbon Border Adjustment Mechanism (CBAM). What the EU projects as an instrument of green accountability is interpreted by emerging economies as a decisive trade barrier — yet another effort to discriminate against developing countries. As climate diplomacy enters this new battleground, the carbon tax is quickly becoming a lightning rod for contesting developmental equity, green imperialism and global trade fairness.

CBAM: A climate tool or a trade barrier?

At its core, CBAM is a tariff on carbon-intensive imports into the European Union. As per the proposed directive, from 2026, non-EU producers of goods like steel, cement, aluminium, fertilisers, and electricity will have to pay for the emissions embedded in their exports, mirroring what EU companies already pay under the bloc’s Emissions Trading System (ETS). The price of these certificates will reflect the weekly average auction price of EU ETS allowances, which has fluctuated between 60 and 90 euros per tonne of carbon dioxide in recent years. While the mechanism ostensibly aims to prevent “carbon leakage”, that is, the relocation of polluting industries to countries with lax climate rules, it effectively acts as a trade policy dressed in green robes.

The BRICS nations, representing 41 per cent of the global population and nearly 40 per cent of the global economy (measured by Purchasing Power Parity, PPP), have responded with sharp criticism. They argue that CBAM unilaterally shifts the burden of decarbonisation onto developing economies, bypassing principles of equity, common but differentiated responsibilities (CBDR), and respective capabilities that underpin the Paris Agreement. These countries, already grappling with poverty, infrastructure gaps, and late-stage industrialisation, face the risk of being priced out of global markets under the guise of climate compliance.

India, in particular, stands to lose significantly. According to a report by Grant Thornton Bharat, Indian steel exporters could face cumulative losses of over $551 million by 2034 due to CBAM. India exported over $3 billion worth of steel to the EU in FY2022-23, accounting for roughly 23.5 per cent of its steel exports. Aluminium and cement sectors are also vulnerable. For instance, India’s aluminium industry emits roughly 20 tonnes of carbon dioxide per tonne of primary aluminium, compared to the EU average of 6.5–7 tonnes, leading to a price disadvantage under CBAM. Union minister Piyush Goyal has already stated that India “will retaliate” under World Trade Organisation frameworks if its industry is unfairly targeted.

The developing world’s pushback

The recent BRICS environment ministers’ meet reinforced this discontent. Countries accused the EU of weaponising environmental standards to stymie industrial growth in the Global South, amounting to a form of “carbon colonialism”. External Affairs Minister S Jaishankar, too, termed CBAM “unacceptable”, describing it as a coercive tool rather than a cooperative measure.

At the heart of the pushback is a growing recognition that global climate action cannot be built on the ruins of developing economies’ growth ambitions. BRICS countries argue that they were not the historical emitters of greenhouse gases — the West industrialised for over two centuries on the back of carbon-heavy growth. Now, when nations like India and Brazil attempt to expand their manufacturing base or energy production, they are penalised for doing so in a carbon-intensive manner, even as their per capita emissions remain a fraction of Western levels.

Moreover, CBAM does not consider whether countries have carbon pricing mechanisms of their own. India, for instance, has implemented the Perform, Achieve and Trade (PAT) scheme, Renewable Energy Certificates (RECs), and various state-level carbon initiatives. These domestic efforts are not factored into CBAM’s framework. Instead, a flat levy is imposed, undermining indigenous climate policy instruments and incentivising compliance with EU regulations rather than encouraging sovereign pathways to sustainability.

India’s strategic dilemma — retaliation or reinvention?

India now faces a dual challenge. On the one hand, it must shield its exporters and protect its economic sovereignty. On the other, it must accelerate its green transition without allowing external pressure to dictate the pace or path. The government is reportedly considering countermeasures, from seeking redress at the WTO to exploring tit-for-tat tariffs on European imports.

At the same time, India could turn this moment into an opportunity. By investing in low-carbon production processes such as green hydrogen in steelmaking, or waste heat recovery in cement, Indian exporters can gradually future-proof their industries. A 2024 CEEW study estimates that green hydrogen adoption in steel manufacturing could reduce carbon dioxide emissions by 60–70 per cent by 2040, making Indian steel CBAM-compliant in the long run. But these transformations require time, money, and technology transfers, not punitive taxation.

What is urgently needed is a just transition architecture at the global level, one that blends climate ambition with financial and technological support for developing countries. Without this, measures like CBAM risk fracturing global climate cooperation. The Global North cannot preach emissions reduction while simultaneously blocking the Global South’s access to global markets through climate tariffs.

Indeed, the choice is not between climate action and development. It is about climate justice, where those with greater responsibility and capability shoulder a commensurate burden. CBAM, in its current form, violates that basic principle.

Climate cooperation or carbon protectionism?

The battle over CBAM is emblematic of a deeper faultline in the international order between those who have historically polluted and now seek to police, and those who are still climbing the development ladder but are being taxed for every rung. It revives the old North-South divide under a new guise.

Europe may have crafted CBAM as a climate strategy, but if it wishes to play a credible leadership role in the green transition, it must also listen to voices from the Global South. Without inclusion, consultation, and equity, CBAM will not accelerate climate goals, it will merely fracture trust.

For India and other BRICS nations, this is not just about trade or emissions; it is about sovereignty, justice, and the right to grow on their own terms. The carbon border tax, in its current form, is not a solution. It is a symptom of a world still unwilling to reconcile ambition with fairness. And until that changes, resistance will remain as firm as forged steel. India needs to work with the US and BRICS to build suitable negotiating leverage against such unilateral and unfair trade measures imposed by the EU.

Trigunayat is a retired IFS Officer and a former ambassador. Singh is CEO and director, Earthood