The EU’s Carbon Border Adjustment Mechanism (CBAM), which applies a levy on carbon-intensive imports from countries without comparable carbon pricing, increases costs for European importers and downstream industries.
EU companies thus have an interest in ensuring that their counterparts abroad comply with CBAM requirements and reduce the carbon footprint of their products. This aligns well with the so-called carbon diplomacy efforts of the European Commission, which aim to promote carbon pricing policies in partner countries. However, there is still scope to better align these efforts with EU industrial competitiveness objectives.
This policy brief proposes turning carbon diplomacy into a strategic instrument of industrial policy, with a stronger focus on key trading partners, emphasis on MRV interoperability and mutual recognition of ETS, and integration into external instruments such as Clean Trade and Investment Partnerships and Team Europe Initiatives. Ultimately, such an approach can strengthen Europe’s long-term competitiveness and decarbonisation while accelerating the transition to renewable energy in industrial production.
About the author:
Giulia Cretti is a Research Associate at the EU & Global Affairs Unit of the Clingendael Institute.