The EU’s Carbon Border Adjustment Mechanism (CBAM) places a carbon price on imported emissions-intensive goods to limit leakage and reinforce the EU’s climate ambitions. While low-income countries have expressed concern about export losses, in our new paper “The Global Effects of Carbon Border Adjustment Mechanisms” using detailed plant-level data we show that these concerns are not universally justified. Producers in poorer countries are not systematically more emissions-intensive than those in richer economies, and many may benefit from cleaner energy inputs. At the same time, CBAM creates an opportunity for governments to implement domestic carbon pricing that retains revenue at home rather than ceding it to the EU. As a result, CBAM presents a mix of risks and new development opportunities.
CBAM’s Logic and Its Effects on Developing Countries
CBAM complements the EU’s Emissions Trading System by ensuring that imported goods face a carbon price similar to that imposed on European producers. Its purpose is to discourage the relocation of emissions-intensive production and to ensure that climate efforts in one region are not undermined by free-riding elsewhere. Although often criticised as unfair to low-income exporters, evidence from aluminium and steel plants worldwide indicates no clear relationship between a country’s income level and the emissions intensity of its industrial facilities. Differences instead reflect technologies, energy sources, and production scales—factors that vary widely within both rich and poor countries. This means CBAM penalises carbon-intensive producers regardless of location and may improve the competitiveness of cleaner producers in developing economies. For many countries with renewable energy potential, CBAM could enhance access to EU markets rather than restrict it.
Mozambique’s Aluminium Example
Mozambique illustrates how outcomes depend on plant-level characteristics. The Mozal aluminium smelter dominates the country’s exports and relies heavily on electricity, making emissions accounting central to its competitiveness under CBAM. When its energy use is attributed to Mozambique’s hydropower resources rather than South African coal-based imports, Mozal appears substantially cleaner than major producers in China or India. As EU firms lose free allowances and face higher costs, cleaner producers like Mozal could secure a stronger foothold in the European market. This case underscores that CBAM can reward low-carbon production in developing economies rather than systematically penalise them.
Fiscal and Policy Opportunities
Because exporters must pay a carbon price whether or not their own country imposes one, CBAM offers governments a chance to introduce domestic carbon taxes without harming the competitiveness of their firms. A domestic levy substitutes for the payment that would otherwise be made to the EU, allowing revenue to remain in the exporting country. For low-income economies with few large industrial emitters, this approach provides an efficient and administratively manageable source of fiscal revenue. To take advantage of CBAM, countries need credible emissions measurement and verification systems that accurately document the carbon content of exported goods. Strengthening these systems and certifying the use of low-carbon electricity are essential steps for ensuring that clean producers are recognised as such. With these measures in place, domestic carbon pricing can become a tool for both fiscal strengthening and climate-aligned industrial development.
Conclusion
CBAM is reshaping global climate-trade dynamics, but it need not disadvantage low-income countries. With accurate emissions data, credible verification, and targeted domestic carbon pricing, CBAM can support competitive low-carbon production and offer new fiscal opportunities. Rather than a threat, it can become an instrument for cleaner industrial growth and stronger economic resilience.