A Trade Storm Is Brewing in Dubai

The European Union launched the first stage of its carbon border tax this fall, and the world’s biggest emerging economies aren’t happy.

As of October 1, the EU regulation officially known as the “carbon border adjustment mechanism” requires importers to report the emissions associated with making steel, cement, fertilizers, and other carbon-intensive products. Those embedded emissions will then be subject to a targeted carbon tax starting in 2026.

The tariff isn’t merely punitive — rather, it’s intended to keep companies in the EU competitive with those in countries with lower or nonexistent carbon regulations. (The EU has capped internal carbon emissions since 2005.) But Brazil, China, India, and South Africa have all pushed back against the EU for raising trade barriers, calling the adjustment “discriminatory.”

Now, Brazil has brought those grievances to COP28. On behalf of the four countries, it pushed for language — seemingly authored by China — to be inserted into an early draft of the agenda-setting global stocktake that will be negotiated during the conference, Politico reported.

The draft text “expresses serious concern” about policies like the EU’s tariff, “which are not aligned with the principles of the Paris Agreement, in particular equity and common but differentiated responsibilities and respective capabilities, as well as [World Trade Organization] rules.” Brazil’s submission argues that such “unilateral” measures “seriously undermine multilateral cooperation and the ability of the concerned countries to combat climate change.”

In fact, top WTO officials have voiced support in the past for rules that address “carbon leakage” and have said they’re trying to overcome international differences on carbon pricing, according to an earlier Politico report.

Rebeca Grynspan, secretary general of the United Nations conference on trade and development, spoke up for emerging economies at COP28, explaining at an event that they see green trade barriers like the EU’s as “protectionist” and as “an obstacle for their development,” according to Agence France-Presse. Ajay Banga, president of the World Bank, also warned in Dubai of “unintended consequences” from regulating trade.

European negotiators, for their part, don’t seem too worried. “We don’t expect them to derail the conversations, mostly because I don’t think any party expects this to be a forum for a discussion” on trade, EU representative Jacob Werksman told reporters. “There’s a whole other institution for that. That’s the World Trade Organization.”