Europe's carbon border tax is the most ambitious climate trade policy ever attempted. Its trading partners are furious.
On 1 January 2026, the EU's Carbon Border Adjustment Mechanism began collecting payments on imports of steel, aluminium, cement, fertilisers, electricity, and hydrogen. After a two-year transitional period of reporting only, importers must now purchase CBAM certificates matching the EU's carbon price for every tonne of embedded emissions. The mechanism is designed to prevent carbon leakage — the relocation of production to jurisdictions with weaker climate rules — and to level the playing field between EU and non-EU producers.
India was the first to act, filing a formal WTO complaint in February 2026 arguing that CBAM constitutes a discriminatory trade barrier. Turkey and China followed within weeks. Russia, which cannot file at the WTO due to procedural reasons, has threatened retaliatory measures on EU agricultural exports.
The core legal argument from complainants is that CBAM violates the Most Favoured Nation principle by imposing different costs on imports based on the exporting country's climate policies — something WTO rules were not designed to adjudicate.
You cannot ask the developing world to pay for a problem the developed world created and then call it a level playing field. Indian Commerce Minister