On May 12, 2025, the Russian Federation formally requested consultations with the European Union (EU) at the World Trade Organization (WTO) concerning the EU’s Carbon Border Adjustment Mechanism (CBAM) policy package[1]. This move marks a significant escalation in international trade tensions over climate-related trade measures.
Background: The EU’s CBAM Policy
The EU’s CBAM, established by Regulation (EU) 2023/956, is designed to address the risk of “carbon leakage”, the relocation of production to countries with laxer emission constraints or the replacement of EU goods with imports from such countries. CBAM imposes requirements on importers of certain goods (such as steel, cement, aluminium, fertilizers, and electricity) to purchase and surrender CBAM certificates corresponding to the embedded carbon emissions in those goods. The price of these certificates is linked to the EU Emissions Trading System (ETS).
Russia’s Main Claims Against the CBAM
Russia’s complaint, as circulated to the WTO Dispute Settlement Body, raises several key concerns:
- Trade Barriers and Discrimination: Russia argues that the CBAM is not a genuine environmental measure but a highly trade-restrictive and discriminatory mechanism that protects EU industries under the veneer of climate policy. The complaint alleges that CBAM increases costs, complexity, and regulatory unpredictability for non-EU exporters, effectively acting as a “tariff-like” charge on imports from countries like Russia.
- Administrative Burdens: CBAM requires importers to comply with extensive administrative requirements, including emissions monitoring, reporting, verification by accredited third parties, and the purchase of CBAM certificates. Russia claims these requirements are burdensome, costly, and create significant uncertainty for exporters.
- Export Subsidy Allegations: Russia also challenges the EU’s practice of allocating free emission allowances to sectors deemed at risk of carbon leakage under the EU ETS. Russia contends that this constitutes an export subsidy, giving EU producers an unfair advantage over foreign competitors.
- Exceptions and Arbitrary Rules: The complaint highlights that certain countries (e.g., Iceland, Norway, Liechtenstein, Switzerland) are exempted from CBAM requirements, and that the EU can arbitrarily determine the number of certificates required based on default values, which may disadvantage specific countries or sectors.
Legal Basis for Russia’s Complaint
1. Challenge to the CBAM (Carbon Border Adjustment Mechanism)
Russia claims that the rules under the EU’s CBAM policy violate WTO obligations by:
Russia claims that the rules under the EU’s CBAM policy violate WTO obligations by:
a. Discriminating against foreign goods and treating imports less favourably than EU domestic products.
b. Creating trade barriers through complex rules and reporting obligations.
c. Violating multiple WTO provisions, especially from the GATT 1994, such as:
- Article I:1 (Most-Favoured-Nation treatment),
- Article III (National treatment on internal taxation and regulation),
- Article XI:1 (Prohibition on import restrictions),
- Article X:3(a) (Transparent administration of trade regulations).
d. Russia also argues that CBAM breaches commitments made by certain EU Member States (like Bulgaria, Latvia, Estonia, Croatia, Lithuania) when they joined the WTO.
e. Additionally, it violates the Agreement on Import Licensing Procedures, due to non-transparent and burdensome requirements on importers.
2. Export Subsidy
Russia claims the EU’s free emission allowances for industries violate:
a. SCM Agreement (Articles 1.1, 3.1): Free allowances act as illegal subsidies, favouring EU producers over foreign competitors.
b. GATT 1994 (Articles VI, XVI): Unfair advantages distort trade and harm Russia’s interests.
Impact On India
The EU-Russia dispute over the Carbon Border Adjustment Mechanism (CBAM) could have significant implications for India, both directly and indirectly. The most immediate impact would be on Indian exports to the European Union, particularly in carbon-intensive sectors such as steel, aluminum, cement, fertilizers, and electricity. Since Indian production in these sectors tends to be more carbon-intensive than the EU average, Indian goods would face higher CBAM-related costs, making them less competitive in the European market.[1] In 2022, more than 25% of India’s exports in steel, aluminum, and iron (worth around US$8.2 billion) went to the EU.[2] With CBAM potentially adding a 20–35% tariff-equivalent cost, Indian exporters could see reduced demand for their products, which in turn could affect revenue and employment, especially in sectors like steel that contribute significantly to the Indian economy.
Another major challenge for India would be the administrative and compliance burden created by CBAM. Indian exporters would need to provide detailed data on their production processes and carbon emissions, which could involve reporting up to 1,000 data points per shipment.[3] This is not only resource-intensive but also raises concerns about the exposure of sensitive business information. Even if India were to introduce its own domestic carbon tax to offset some of these costs, the EU’s higher carbon price means that Indian exporters would still face substantial CBAM charges, limiting the effectiveness of such measures.
Beyond the direct trade impact, CBAM also puts pressure on India’s domestic climate policy. The mechanism is effectively pushing India to consider carbon pricing or other climate measures to maintain access to the EU market. However, India has consistently argued that CBAM violates the principle of “common but differentiated responsibilities,” which recognizes that developing countries have different capacities and responsibilities in addressing climate change.[4] There is also a risk that if other developed countries adopt similar carbon border taxes, Indian exports could face new barriers in multiple markets, amplifying the impact on India’s trade balance and economic growth.
Finally, the dispute’s outcome could influence ongoing Free Trade Agreement (FTA) negotiations between India and the EU. India is seeking exemptions or relief from CBAM as part of these talks, and the WTO’s decision on the Russia-EU dispute could set a precedent that affects India’s negotiating position.[5] More broadly, the case will shape how India and other developing countries respond to the growing trend of climate-linked trade measures globally, with potential long-term consequences for India’s export strategy, climate policy, and economic development.
[1] https://sprf.in/india-vs-eus-cbam-trade-wars-green-tariffs/
[2] https://www.india-briefing.com/news/eu-carbon-border-adjustment-mechanism-impact-india-business-exports-27901.html/
[3] https://www.policycircle.org/economy/eus-cbam-trouble-for-india/
[4] https://www.alcircle.com/news/cbam-vs-fta-indias-balancing-act-to-tackle-climate-costs-and-trade-deals-with-the-eu-113406
[5] Id.