The International Law Reading of the EU Carbon Border Adjustment Mechanism (CBAM)

Table of Contents: 1. Introduction. – 2. International Trade and the Environment: The Fight against Climate Change. – 3. The Carbon Border Adjustment Mechanism (CBAM) Regulation. – 4. The Legality of the CBAM under the Law of the World Trade Organization (WTO). – 5. The CBAM under the Lens of International Climate Change Law. – 6. Concluding Remarks.

Abstract: The EU Carbon Border Adjustment Mechanism (CBAM), established by Regulation (EU) 2023/956 of 10 May 2023, aims to realise the EU climate ambition and leadership primarily by preventing the risk of carbon leakage in furtherance of the goals of the Paris Agreement of 12 December 2015. This also entails promoting decarbonisation in third countries, including in newly industrialized countries that may be still categorized as developing. This article provides an assessment of the legality of the CBAM under international law, namely pursuant to international trade law, especially the law of the World Trade Organization (WTO), and international environmental law, notably under the international climate change regime (ICCR). This article highlights that the CBAM, while being overall WTO compatible, fails to adequately address the principle of common but differentiated responsibilities (CBDR) that is cardinal within the ICCR. In this respect, the introduction of differential treatment in favour of least developed countries (LDCs) would strengthen the legitimacy of the European climate ambition and leadership.

Keywords: Carbon Border Adjustment Mechanism – international trade law – World Trade Organization – international environmental law – international climate change law – Common but differentiated responsibilities.

1.   Introduction

The EU Carbon Border Adjustment Mechanism (CBAM), established by Regulation (EU) 2023/956 of 10 May 2023 (CBAM Regulation), has been the object of intense debate not only in relation to its effectiveness in the attainment of climate objectives but also with respect to its consistency with international law.[1] From the point of view of international environmental law, especially under the international climate change regime (ICCR), it is meant to fully realize the ‘ambition cycle’ of the fight against climate change, notably in furtherance of the obligations established by the Paris Agreement of 12 December 2015.[2] From the point of view of international trade law, chiefly under the law of the World Trade Organization (WTO), the CBAM stands as a unilateral trade measure primarily aimed at realising non-trade objectives, such as the environmental protection and climate change adaptation and mitigation.[3] The CBAM currently is the object of a request for consultations presented by the Russian Federation in 2025 at the WTO based on the (alleged) violation of the General Agreement on Tariffs and Trade 1994 (GATT 1994) and the Agreement on Subsidies and Countervailing Measures (SCM Agreement).[4] After briefly illustrating the relationship between international trade and the protection of the environment (para. 2), the present contribution will provide an analysis of the provisions of the CBAM that are relevant for the investigation whether it may be implemented in overall compatibility with international law (para. 3). This question is then developed in relation to international trade law, notably under WTO law (para. 4), and international environmental law, notably under the ICCR (para. 5). The conclusive remarks (para. 6) recapitulate the findings of this article. The available literature has abundantly analysed the CBAM Regulation under the lens of EU law and also international trade law. This article further extends the legal analysis and critique to its full-fledged consistency with the ICCR. Notably, it is submitted herein that while a violation by the EU of the WTO covered agreements may be overall justified under the substantive coverage of a general exception of environmental nature, the CBAM nevertheless currently fails to adequately implement the principle of common but differentiated responsibilities (CBDR) under the Paris Agreement absent, for instance, any differential treatment benefitting least developed countries (LDCs). Consequently, it is advocated that the EU should definitely bring the CBAM in consistency with both international trade law and international environmental law.

2.   International Trade and the Environment: The Fight against Climate Change

The relationship between international trade law and international environmental law, including with respect to the dispute settlement dimension, has been central in the practice of the WTO in the last decades,[5] as is currently the question of the interaction between the world trade regime and the ICCR.[6] The World Trade Report 2022 has focused on the interlinkages between climate change and international trade by adopting a policy perspective in which international trade rules can contribute to addressing climate change.[7]The Report submitted that leveraging trade to tackle climate change presents several development and growth opportunities and will require significant policy actions for States to advance a just transition towards a less carbon-intensive economy. Moreover, the Intergovernmental Panel on Climate Change (IPCC) has noted that ‘policies to open up trade can have a range of effects on GHG emissions, just as mitigation policies can influence trade flows among countries’[8] and identified the liberalisation of trade in environmental goods and services as measures that ‘may both lower trade barriers and potentially bring about GHG emission reductions’.[9]

At the level of international law-making, States are progressively inserting provisions related to the fight against climate change and sustainability in general within the renegotiation of their existing trade agreements or in the stipulation of new treaties.[10]Moreover, the WTO Environmental Database (EBD) shows that a significant number of environment-related notifications by WTO members contain climate change-related trade measures.[11] Relevant examples are represented by the establishment of carbon markets, the introduction of renewable energy subsidies or support (as under the US Inflation Reduction Act of 2022), reforms of fossil fuel subsidisation schemes, import bans targeting carbon-intensive products, the regulatory and administrative application of ‘green’ standards and labelling models and border carbon adjustments (BCAs), such as the CBAM.[12] Such measures may lend themselves to the allegation of protectionism in the cover of environmental protection against the applicability of the WTO covered agreements. It is also appropriate to mention trade measures with a sectoral ‘green’ scope through which States support the free movement of climate-friendly goods across borders by reducing tariff and non-tariff barriers that are applicable to their commerce.

The DSS may scrutinise the WTO legality of both pro-climate and anti-climate measures (e.g., a program of subsidies for fossil fuels) affecting trade between WTO Members.[13] The challenged State measure may be represented by an act or an omission. An example of a relevant State omission is a Member State’s failure to adopt adequate climate-friendly trade measures in furtherance of its own Nationally Determined Contributions (NDCs) pursuant to the Paris Agreement[14] or, based on the WTO covered agreements themselves, to comply with the general obligations to lower or eliminate tariff or non-tariff barriers to trade also with regard to environmental goods and services. In the latter case, the WTO complaint may be rooted in mere trade concerns in so far as a trade-restrictive measure negatively affects also climate goals and objectives.[15]

It is submitted that State measures imposing bans or restrictions affecting ‘brown’ industries or providing incentives in favour of ‘green’ productions may withstand the DSS scrutiny, but for a finding of discriminatory, selective or protectionist application. The environmental exceptions among the general exceptions under the WTO covered agreements, for instance under Article XX(b) and (g) of the GATT 1994, namely with respect to the protection of ‘human, animal or plant life or health’ and the ‘conservation of exhaustible natural resources’,[16] allow the DSS to recognise the sovereign right to regulate of WTO Members and to consider the application of the police powers doctrine in connection with the States’ legitimate aim to protect public interest. Moreover, the reference to customary rules of interpretation of public international law under Article 3.2 of the Dispute Settlement Understanding (DSU)[17] entrusts WTO adjudicators sufficient techniques to integrate climate change and other environmental considerations pursuant to the hermeneutic canons of systemic integration established under the Vienna Convention on the Law of Treaties of 1969 (VCLT). Indeed, Article 31(3)(c) of the VCLT refers to ‘any relevant rules of international law applicable in the relations between the parties’ that can be taken into consideration as external[18] context of the applicable treaty for the purposes of its interpretation.[19] At the same time, as addressed below in relation to the design of the CBAM,[20] the chapeau of Article XX of the GATT 1994 prescribes that such ‘green’ measures shall not be applied ‘in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade’.[21] This postulates that the design and implementation of domestic measures that further climate change action shall be driven by a genuine climate concern and not applied and executed as means of economic protectionism. Significantly, a specular principle is also found in Article 3.5 of the United Nations Framework Convention on Climate Change (UNFCCC), pursuant to which ‘[m]easures taken to combat climate change, including unilateral ones, should not constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade’.[22]

The proposition that Member States’ ‘green’ measures may adjudicated by the DSS as being overall WTO compatible – except for a finding of protectionist application de jure or de facto – was confirmed by the twin panel reports dated 5 March 2024 and 10 January 2025, respectively, in the EU – Palm Oil cases.[23] Malaysia and Indonesia challenged certain measures enacted by the EU that applied restrictions on the importations of palm oil, as oil crop feedstocks, and oil palm crop-based biofuels (both complainant States are major world producers of palm oil).[24] Concerning the alleged violations of the GATT 1994, the panels found that certain of those measures were prima facie inconsistent with the EU’s most favoured nation (MFN) and national treatment (NT) obligations pursuant to Articles I.1 and III:4 of the GATT 1994 because they accorded less favourable treatment to palm oil-based biofuel from Malaysia and Indonesia, whose competitive opportunities were diminished and eventually excluded, than that accorded to like products of local or foreign origin, such as rapeseed oil- and soybean oil-based biofuel, thus engendering a detrimental effect.[25] The EU further submitted as a defence that its measures pursued the long-standing and legitimate policy goals of the EU biofuels regime relating to ‘climate change mitigation, environmental and biodiversity objectives and moral concerns’.[26] In this respect, the panels found that the measures at issue related to the conservation of exhaustible natural resources and were made effective in conjunction with restrictions on domestic consumption or production within the meaning of Article XX(g), and were also necessary to protect human, animal or plant life or health within the meaning of Article XX(b).[27] Hence, they could be considered as being prima facie justified under the GATT 1994 in connection with a legitimate regulatory distinction. However, the panels also had to address the respect by the EU of the compulsory requirements of the chapeau of Article XX, which establishes that any Member States’ measure – although being provisionally justified pursuant to a general exception – should not be applied arbitrarily or in discriminatory manner.[28] In this respect, the panels ultimately held that the measures at issue violated the chapeau of Article XX because the EU failed to conduct a timely review of the data used (as well as to provide a commenting process) to determine which biofuels were concretely associated with high risk of contribution to GHG emissions, and also because there were deficiencies in the design and implementation of the applicable criteria and certification procedure.[29] Therefore, it was overall impossible for the panels to justify ultimately the EU measures at issue.[30] At the same time, the binding EU – Palm Oilreports confirm the overall WTO compatibility of ‘green’ measures in furtherance of the goals of the Paris Agreement, a conclusion that will be tested in relation to the application, design and implementation of the CBAM in the following paragraphs.[31]

3.   The Carbon Border Adjustment Mechanism (CBAM) Regulation

The CBAM embodies one of the main climate measures of the EU in the framework of its environmental agenda in the perspective of sustainability, as encapsulated in the ‘European Green Deal’ of 2019.[32] It is part of the ‘Fit for 55’ legislative package that constituted in 2021 the set of proposals for the adoption of the ‘European Climate Law’, which established for the EU the binding reduction target for net GHG emissions of at least 55 % compared to 1990 levels by 2030 and fixed the objective of a climate-neutral Union by 2050 at the latest.[33] The CBAM Regulation aims at reducing the risk of carbon leakage for European energy intensive and trade-exposed industries that may face the cost of increased climate ambition, taking into consideration the global objective of reducing GHG emissions in the EU and globally.[34] In light of the absence of uniform carbon pricing at the universal level, carbon leakage may be described as the ‘migration of CO2-intensive economic activities and associated emissions from countries with stringent regulations to those with more lenient ones’.[35] The risk of carbon leakage is more significant for the productions having a higher degree of GHG emissions throughout their global value chain.[36] This explains the selection of the relevant products that are currently targeted by the CBAM Regulation, namely cement, electric energy production, fertilisers, iron and steel, aluminium and chemicals (hydrogen).[37] The gradual introduction of the CBAM in the next years (CBAM phase-in) is complementary to the intertwined reform of the allocation of free allowances under the EU Emissions Trading System (ETS) to support the decarbonisation of the EU industry, which should be correspondingly superseded through replacement (ETS phase-out).[38] Notably, the goods originating in countries that are either integrated (Iceland, Liechtenstein, Norway) or subject to a carbon pricing system that is fully linked (Switzerland) to the ETS are exempted from the application of the CBAM.[39] Apart from ‘the development of bilateral, multilateral and international cooperation’, all other third countries are provided by the EU with the option to join a ‘Climate Club’ of future creation, namely ‘a forum of countries with carbon pricing instruments or other comparable instruments’.[40]

The Regulation crucially focuses on the carbon footprints that are embedded in the targeted products.[41] In this respect, the CBAM envisages a ‘fair price’ on the carbon emitted during the production of carbon intensive goods that enter the EU single market, thus encouraging cleaner industrial production also in non-EU countries. That the CBAM Regulation has the purpose to foster decarbonisation, also through the transfer of technology, in third countries extraterritorially is expressly stated therein.[42] In particular, the aforementioned ‘fair price’ comprises the embedding[43] of carbon emissions generated in the production of the concerned goods that are imported into the Union, hence ensuring through a sort of equalisation mechanism that the carbon price of imports is equivalent to the (otherwise higher) carbon price that is applied to domestic production.[44] Accordingly, with the aim to level the playing field internally in the EU, the CBAM addresses the relevant local industries’ concerns over competitive disadvantages associated with asymmetrical (lower) carbon prices in foreign countries.

The CBAM Regulation also regulates the procedure that is applicable to interested importers for applying for the status of authorized CBAM declarants,[45] the submissions of CBAM declarations in the CBAM registry starting from 2027,[46] as well as the calculation of embedded emissions[47] and the relevance of the payment of the carbon price in the country of origin of the imported goods.[48] In the framework of the first EU ‘Omnibus’ packages of 26 February 2025, the European Commission proposed a set of changes to simplify the CBAM and enhance its effectiveness and efficiency.[49] One of the main amendments of the CBAM is predicted to consist in the exemption of small and occasional importers from CBAM obligations, mostly small-medium enterprises (SMEs) and individuals. This is meant to be implemented through the application of a de minimis cumulative annual threshold of 50 tonnes mass of embedded emissions per importer.[50] Moreover, while various rules and procedures under the CBAM will be simplified (e.g., the authorisation of CBAM declarants, the method for the calculation of embedded emissions, the reporting requirements, the management of regulated importers’ financial liability), an envisaged legislative proposal is expected to extend the scope of the Regulation to other ETS sectors, downstream goods and indirect emissions.

4.   Legality of the CBAM under the Law of the World Trade Organization (WTO)

In relation to its consistency with the WTO regime,[51] the CBAM has prompted criticism that it could be construed as a sophisticated instrument of ‘green’ industrial policy aimed at protectionism in favour of domestic producers vis-à-vis foreign competitors rather than genuinely serving climate change action goals.[52] For instance, as mentioned above, the relevant goods (e.g., cement) imported in the EU from Iceland, Liechtenstein, Norway and Switzerland are exempted from the application of the CBAM.[53] Provided that the exemption from the application of the CBAM substantiates an ‘advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country’, this constitutes origin-based discrimination between like imported products in violation of the MFN treatment pursuant to Article I:1 of the GATT 1994. Notably, the rule of outland or foreign parity between like, including directly competitive and substitutable, imported goods cannot be circumvented through regulatory distinctions based on the reference to non-product-related processes and production methods, such as with respect to the thresholds of embedded GHG emissions.[54] Accordingly, cements imported from Switzerland and, for example, from India would be considered ‘like’ products based on the ordinary criteria (or groupings of potentially shared characteristics) of their physical properties, end-uses, consumers’ tastes and habits and tariff classification.[55] This entails that the factor of a different (higher) quantity of direct GHG emissions released during the production of goods (and indirect emissions from the production of electricity that is consumed during the production processes) cannot allow discrimination by the EU, including with respect to the obligation of WTO Member States to grant the MFN treatment under Article I:1 of the GATT 1994. This holds through also with regard to the obligation of the EU to guarantee national treatment on internal taxation and regulation (inland parity) pursuant to Article III of the GATT 1994 concerning the relationship between imported and like domestic products of national origin. Notably, under the GATT 1994, Article III:2 regulates ‘internal taxes or other internal charges of any kind’,[56] whereas Article III:4 applies to ‘all laws, regulations and requirements’ affecting imported products, namely their ‘internal sale, offering for sale, purchase, transportation, distribution or use’.[57] Provided that it falls under the category of ‘laws, regulations and requirements’ and its application engenders less favourable treatment, the CBAM Regulation is inconsistent with Article III.4 of the GATT 1994 in so far as it determines a detrimental impact on the competitive opportunities of the relevant imported goods in vis-à-vis the like domestic products. Finally, the CBAM Regulation may also be subject to scrutiny against the applicability of Article II:1 of the GATT 1994 concerning all WTO Member States’ obligation relating to their schedules of concessions, in particular to respect bound tariffs.[58]

Having established that a WTO panel may ascertain that various provisions of the CBAM Regulation are prima facie inconsistent with the MFN and NT obligations of the EU under Articles I and III of the GATT 1994, the EU may nevertheless rely on its objective of climate change mitigation (for instance, through reducing direct and indirect GHG emissions globally) to invoke a general exception of environmental nature under Article XX of the GATT 1994 in order to justify its violations. Accordingly, the EU may successfully argue that the CBAM falls under the scope of measures legitimately aimed at the protection of ‘human, animal or plant life or health’ under Article XX(b) and the ‘conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption’ under Article XX(g) of the GATT 1994. At the same time, as occurred in the EU – Palm Oil cases, which have been analysed above,[59] a panel is not likely to rely on the general exception of the protection of ‘public morals’ under Article XX(a) of the GATT 1994.[60] Moreover, as to the general exception under Article XX(b) of the GATT 1994 (protection of human, animal or plant life or health), the CBAM shall further be held as ‘necessary’ to fulfil its legitimate objective (necessity test). In this respect, the CBAM would not need to have an immediately observable or discernible impact on the objective to reduce GHG emissions. For instance, the Appellate Body in Brazil – Retreaded Tyres noted that ‘measures adopted in order to attenuate global warming and climate change… can only be evaluated with the benefit of time’.[61] To such an extent, it would be sufficient for the EU to establish that the CBAM is apt to make a material contribution to the achievement of that objective, which is in place ‘when there is a genuine relationship of ends and means between the objective pursued and the measure at issue’.[62] Further, to satisfy the necessity test the CBAM should not be considered as being more trade restrictive than necessaryto attain the protection of human, animal or plant life or health. This entails the conclusion that less trade restrictive alternative measures should not have been reasonably available to the EU ‘to achieve its desired level of protection with respect to the objective pursued under Article XX of the GATT 1994’.[63] In this respect, the burden to identify the alternative measures that the EU should have taken would be allocated to the complainant States. Only at that point, the EU would be required to demonstrate that less trade restrictive alternatives were not reasonably available ‘in the light of the interests or values being pursued and the party’s desired level of protection’.[64] To this extent, it would not be for the WTO DSS to second-guess the level of protection chosen by the EU because, as held by the Appellate Body, ‘the fundamental principle is the right that WTO Members have to determine the level of protection that they consider appropriate in a given context’.[65] This would allow the EU to establish that the provisions of the CBAM Regulation (for instance, the exemption of the relevant goods imported from Iceland, Liechtenstein, Norway and Switzerland) that are inconsistent with the WTO covered agreements, as explained above, may nevertheless plainly meet the requirements for provisional justification under Articles XX(b) and XX(g) of the GATT 1994.

Finally, even in case of prima facie justification under a general exception of environmental nature under Article XX of the GATT 1994, the design and implementation of the CBAM may lend themselves to allegations of non-conformity with the mandatory requirements of the chapeau of Article XX of the GATT 1994 with respect to the tests of even-handedness and non-arbitrariness in its concrete application. Under the chapeau of Article XX of the GATT 1994, prima facie justified measures should not be ‘applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade’,[66] which represents a corollary of the principle of good faith.[67] Accordingly, the function of the chapeau is to prevent the trade distortive effects of a Member State’s otherwise legitimate measure and, hence, its abuse of right.[68] The design and implementation of the CBAM may result in arbitrary effects, especially regarding the rules for calculation of the embedded GHG emissions associated with the concerned imported products, which should reflect adequately the real emissions in the exporting country.[69] For instance, in its request for consultations at the WTO the Russian Federation has submitted that the EU has ‘the possibility to arbitrarily determine the number of CBAM certificates required to be purchased and surrendered in connection with imports into the EU of the covered goods, in particular, through the requirements to use default values (established by the EU) for the purpose of calculation of the relevant emissions and, consequently, the number of certificates to be surrendered. Such default values vary depending on, for instance, the country of origin of the covered goods or of the electricity generation’.[70] In this respect, the ‘rational relationship’ between the CBAM itself and the accomplishment of the objective of climate change mitigation through the prevention of carbon leakage may be questioned.[71] While this could engender a creeping barrier to trade targeting major economic partners, the amendments of the CBAM announced by the European Commission in 2025 aims to simplify exactly the method for the quantification of the GHG emissions that are embedded in the regulated products. In addition, the CBAM shall not consist in the rigid and inflexible imposition of essentially the same programme of carbon pricing to all exporting Members, which should be allowed sufficient latitude to enact programmes that are comparable in effects to that of the restricting Member.[72] Finally, although the CBAM clearly is a unilateral measure by a WTO Member State, the EU should (continue to) pursue in good faith multilateral discussions at the diplomatic level concerning the harmonized implementation of BCAs and in general carbon pricing schemes with the third countries that are more significantly affected, for example in the context of the Conference of the Parties (COP) under the aegis of the UNFCCC.

At the same time, the chapeau of Article XX of the GATT codifies the qualifier that the arbitrary or unjustifiable discrimination (de jure or de facto) shall not occur ‘between countries where the same conditions prevail’.[73] The term ‘countries’ refers to the importing Member concerned and the exporting Members, as assumed by the Appellate Body in US – Gasoline.[74] To assess whether the same conditions prevail in the EU and the exporting Member States (such as Brazil, China, India or South Africa),[75]the CBAM should preferably provide for a mechanism of ‘inquiry into the appropriateness of the regulatory program for the conditions prevailing in those exporting countries’.[76] The availability of such a mechanism would point to the absence of protectionist design in the structure of the CBAM itself. On these premises, a WTO panel may find discretely that the relevant imported products and productions that fall under the regulatory scope of the CBAM are not subject in the country of origin to adequate carbon pricing mechanisms that are at least comparable in effects to the application of domestic systems of allocation of allowances as under the ETS or taxation schemes.[77] This may constitute a persuasive ground substantiating that the CBAM does not violate the chapeau of Article XX of the GATT 1994 because discrimination would be applied between countries where the ‘same conditions’ do not prevail. Therefore, provided that the CBAM is provisionally justified under a general environmental exception under Article XX(b) or (g), the discriminatory measures that would be found as inconsistent with the NT and MFN treatment obligations of the EU would be also compliant with the chapeau of Article XX of the GATT 1994. While the application of the rules for calculating the GHG emissions that are embedded in the relevant imported products remains controversial in terms of rationality, this reasoning would preserve the overall WTO legality of the CBAM.

5.   The CBAM under the Lens of International Climate Change Law

Under the perspective of international environmental law, especially under the ICCR, the CBAM aims to fully realize the ‘ambition cycle’ of the fight against climate change, notably in furtherance of the obligations established by the Paris Agreement of 12 December 2015, adopted multilaterally under the aegis of the UNFCCC.[78] The ‘ambition cycle’ consists in the combination of the expectation of progression of the States’ climate efforts communicated through their NDCs pursuant to Article 3, the global stocktake under Article 14, which will be operative from 2025 and embodies the inventory mechanism for assessing the States’ collective progress in the furtherance of climate change actions in the long-term perspective, and the binding obligation of each Party to present NDCs every five years pursuant to Article 4 of the Paris Agreement.[79] In particular, pursuant to Article 3 of the Paris Agreement, ‘[a]s nationally determined contributions to the global response to climate change, all Parties are to undertake and communicate ambitious efforts as defined in Articles 4, 7, 9, 10, 11 and 13 with the view to achieving the purpose of’ the Paris Agreement itself.[80] Moreover, it is established that ‘[t]he efforts of all Parties will represent a progression over time’.[81] Pursuant to Article 4,[82] each Party ‘shall prepare, communicate and maintain successive nationally determined contributions that it intends to achieve. Parties shall pursue domestic mitigation measures, with the aim of achieving the objectives of such contributions’.[83] Each State Party shall communicate every five years its NDCs and every successive edition thereof shall ‘represent a progression’ and ‘reflect’ the ‘highest possible ambition’ of the issuing State (self-differentiation).[84] These obligations bind all the Contracting Parties of the Paris Agreement, having regard to their ‘common but differentiated responsibilities and respective capabilities, in the light of different national circumstances’ (CBDRRC-NC).[85] The ‘ambition cycle’ posits that, but for a certain degree of flexibility and modularity, NDC commitments that are instrumental to the realisation of the goals of the Paris Agreement – first and foremost its temperature goal, the net zero target and the financial pledge (Article 2) – must not be overturned and, moreover, must be progressively strengthened.

While in international trade law commercial discrimination between States, as embodied in the MFN and NT rules, is in principle illegitimate, in international environmental law differentiation between countries has to be applied based on the notion of common but differentiated responsibilities (CBDR).[86] The CBDR principle is structural in international environmental law and is found in Principle 7 of the Rio Declaration on Environment and Development of 13 June 1992,[87] Article 3.1 of the UNFCCC (common but differentiated responsibilities and respective capabilities – CBDRRC)[88] and Article 2.2 of the Paris Agreement (common but differentiated responsibilities and respective capabilities, in the light of different national circumstances – CBDRRC-NC), whereby it is significantly rooted to equity.[89] Somehow reminiscent of the New International Economic Order (NIEO) doctrines,[90] the CBDR principle demands that developed countries should take the lead in combating climate change and its adverse effects in light of their historical records and current levels of GHG emissions. As held by the International Court of Justice in its advisory opinion of 23 July 2025, ‘the principle of common but differentiated responsibilities and respective capabilities reflects the need to distribute equitably the burdens of the obligations in respect of climate change, taking into account, inter alia, States’ historical and current contributions to cumulative GHG emissions, and their different current capabilities and national circumstances, including their economic and social development’.[91] Therefore, non-industrialized States benefit from differential treatment in light of their low(er) figures of GHG emissions and respective capabilities and national circumstances.[92] Consequently, the burden of the efforts to fight climate change is shared unevenly between States under the ICCR based on the two markers of differentiation of the contribution to global environmental harm and capability.[93] Furthermore, the obligations established in multilateral environmental agreements (MEAs) are ‘differentiated on the basis of the differing socio-economic circumstances of different groups of States’ (national circumstances).[94] The CBDR principle has three main operational applications.[95] Firstly, States’ obligations may be qualified through contextualization based on their unequal capacity to address a given environmental problem.[96] Secondly, MEAs may provide tailored and more lenient implementation mechanisms for States with lower budgetary resources and capability to enforce treaty requirements[97] ‘such as delayed compliance schedules [grace periods], permission to adopt subsequent base years, delayed reporting schedules, and softer approaches to non-compliance’.[98] Thirdly, non-capable countries may benefit from preferential aid from developed countries in the form of financial assistance technology transfer and other capacity-building programmes.[99]

With respect to the design of the CBAM, the principle of CBDR would require differential treatment by the EU to the benefit of the relevant imported products that originate from those States who have not historically contributed and are not currently contributing significantly to the global stock of GHG emissions.[100] Accordingly, LDCs, such as Small Island Developing States, should be offered preferential treatment in comparison to all other exporting States, including for example recently industrialised countries, also due to the materially different impacts that may result from the application of the CBAM in light of the national circumstances. This might have been implemented in the CBAM through a waiver for LDCs or the provision of more favourable commercial treatment of the products and productions originating therefrom. The absence of any of these regulatory mechanisms in the CBAM is an indicator of its inconsistency with the CBDR principle under international environmental law. Consequently, the full-fledged loyalty of the EU to the Paris Agreement may be questioned since CBDR is a cardinal pillar in its legal architecture.[101] Furthermore, unlike under the CBAM Regulation, the revenues that are generated by the application of the CBAM itself should be invested directly in programmes of support to decarbonisation in LDCs.[102] The introduction of ‘a new own resource based on the revenues generated by the sale of CBAM certificates’ to the benefit of these countries is only anticipated, but not yet implemented by the EU.[103] This would support enhanced consistency of the CBAM with the ICCR, having regard to the CBDRRC-NC principle and equity in general.

The concept of differential treatment, which is the main corollary of CBDR in operational terms, is not alien to the multilateral trade regime.[104] In the preamble of the Marrakech Agreement, the WTO Members sought ‘both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development’.[105] Moreover, WTO law allows non-reciprocal special and differential treatment (SDT or S&D)[106] in favour of LDCs at variance with the MFN rule.[107] For example, SDT is found in Article 12 of the TBT Agreement, which includes a regulatory waiver from the application of ‘international standards, guides or recommendations’,[108] and Articles 9 and 10 of the Sanitary and Phytosanitary Measures Agreement (SPS Agreement), also in relation to technical assistance.[109]

An amendment of the CBAM that establishes a regulatory waiver or more favourable treatment for the products originating from LDCs (for instance, in terms of quantification of the embedded emissions) would also survive the scrutiny of the WTO DSS against the applicability of the chapeau of Article XX of the GATT 1994, whose rationale is also found in Article 3.5. of the UNFCCC.[110]In this respect, the ‘discrimination’ would not be in place between exporting WTO Members ‘where the same conditions prevail’[111] exactly because the different records of carbon footprints based on historical and current levels of GHG emissions would provide rational justification consistent with the CBDR principle on the basis of the multilateral accords adopted by the community of nations for the fight against climate change.[112]

6.   Concluding Remarks

The CBAM stands as a remarkable instance of delicate balancing between climate change action (climate-informed solutions) and trade restrictiveness (industrial policies and concerns) in unilateral State measures. The CBAM may also be enumerated as new example of contingent unilateralism by the EU because it aims to produce extraterritorial effects and appears to be conditional upon the adoption of ‘adequate international or third country climate change regulation’.[113]

This contribution has attempted to disentangle an apparent irreconcilability between international trade law, notably the law of the WTO, and international environmental law, especially under the ICCR. While non-discrimination is the overarching principle under WTO law based on the MFN and NT rules, both the multilateral trading system and the ICCR, in which the CBDR principle is paramount, provide for differential treatment in favour of LDCs in a dimension of speciality, non-reciprocity and differentiation.  

As it is in force, the CBAM Regulation is overall WTO compatible because its violations of the MFN and NT obligations under Articles I and III would be provisionally justified by virtue of a general exception of environmental nature under Article XX(b) and (g) of the GATT 1994. Moreover, the design and implementation of the CBAM would resist scrutiny against the application of the chapeau of Article XX itself especially because the discrimination between the EU and the exporting Members and between the exporting Members themselves would not be in place in relation to ‘countries where the same conditions prevail’ in so far as potential complainant States have not enacted climate change actions (e.g., carbon pricing systems) that are comparable in effects to those of the EU. At the same time, the EU CBAM does not presently conform to the ICCR since it fails to adequately implement the CBDR principle by addressing the capabilities and national circumstances of LDCs, including Small Island Developing States. Indeed, those countries do not benefit from any regulatory waiver, facilitation mechanism, financial or technical assistance or any other more favourable treatment. Provided that the CBAM would be modified in order to accommodate differential treatment for LDCs, the amendments would also be adjudicated as WTO consistent because the discrimination in question would be applied on the basis of a rational distinction associated with the historical and current GHG emissions and actual capabilities of the countries concerned in line with international climate agreements. Conversely, LDCs may even challenge the WTO legality of the CBAM – as it stands at present – based on its failure to provide preferential treatment to their benefit in light of CBDR in relation to the chapeauof Article XX of the GATT 1994. The legitimacy of the EU climate ambition and leadership would be strengthened on condition that the CBDR principle would be addressed appropriately in the CBAM and internal laws and regulations relating to climate change action.