I. Introduction: Climate Governance and the Limits of Regulatory Unilateralism
Climate change mitigation, a fundamental sovereign function, is essential to protect public health, ecological stability, and long-term economic resilience, obligations that form the foundation of the international environmental order. States derive the power to regulate emissions and industrial activity within their borders from their respective constitutions and international commitments. However, states voluntarily circumscribe elements of this regulatory autonomy by entering into International Economic Law (“IEL”) frameworks, chiefly the World Trade Organization (“WTO”) system, to maintain a stable, non-discriminatory trading order. By committing to rules against arbitrary trade restrictions, states reduce inefficient protectionism and encourage cross border commerce. The sovereign right to regulate climate and environmental harm thus conflicts with the non-discrimination obligations owed to trading partners under international trade law.
The European Union’s Carbon Border Adjustment Mechanism (“CBAM”) transitions into its definitive financial phase in 2026, requiring importers of carbon intensive goods such as steel and cement to purchase certificates reflecting the carbon price they would have paid had the goods been produced under the EU’s own Emissions Trading System. Its stated purpose is to price carbon on imported goods in order to prevent “carbon leakage,” the relocation of emissions intensive production to jurisdictions with laxer climate regulation. This article argues that while CBAM is theoretically designed to function as an instrument of climate protection, it unilaterally restructures the balance of global trade in favour of the Global North. The argument is primarily developed through the lens of India, a significant exporter of CBAM-covered goods including steel, cement, and aluminium, and a jurisdiction whose existing domestic climate frameworks receive no credit under CBAM’s accounting methodology. This unilateralism effectively de-legalises the equitable, multilateral frameworks established under the United Nations Framework Convention on Climate Change (UNFCCC), whose Article 3.5 provides that measures taken to combat climate change should not amount to a disguised restriction on international trade, and does so specifically at the expense of the Global South, with India presenting the most direct and legally documented illustration of this inequity.
II. Climate Non-Tariff Measures in Trade Law: The Standard Model and Its Empirical Friction
Tension between trade liberalisation and environmental regulation is not new to international economic law. The World Trade Organization traditionally manages this friction through what may be called the Standard Model, the General Exceptions carved out under Articles XX(b) and XX(g) of the General Agreement on Tariffs and Trade (GATT) 1994, which permit measures necessary to protect human, animal, or plant life, or relating to the conservation of exhaustible natural resources, provided they do not violate the non-discrimination obligations owed under Articles I (Most Favoured Nation) and III (National Treatment).
A persistent complexity within this model concerns Process and Production Methods (PPMs). Under the established WTO principles regarding non-product-related PPMs (as clarified in US-Tuna II (Mexico)), there is a general prohibition on discrimination against “like products” based purely on how they are produced, if the final product is physically identical. Consequently, green steel and carbon intensive steel are, in principle, treated as “like products” regardless of the emissions embedded in their production process. Historically, the WTO Appellate Body has acted as a strict gatekeeper against protectionism masquerading as environmentalism, a function performed chiefly through the chapeau, the introductory paragraph of Article XX. In US-Shrimp, the Appellate Body held that unilateral environmental measures fail this chapeau where the regulating state has not first engaged in serious multilateral negotiations. US-Tuna II (Mexico) further clarified how technical barriers to trade and non-product related PPMs are to be assessed, reinforcing that an environmental justification alone cannot immunise a measure from scrutiny.
III. Deconstructing the CBAM Regulation
Just as India’s Model BIT Article 2.4(ii) unilaterally ousts arbitral review by allowing the state alone to determine what constitutes taxation, CBAM allows the European Union to unilaterally oust the corrective, multilateral mechanisms of the WTO by dictating the terms on which climate policy is measured and priced (Regulation (EU) 2023/956, Articles 6&7). Rather than submitting its carbon accounting methodology to a negotiated, multilateral benchmark, the EU calculates the embedded emissions of imported goods against its own Emissions Trading System, effectively acting as both judge and jury over what counts as adequate decarbonisation.
This raises a substantive inequality concern beneath the formal equality of the measure. Treating the decarbonisation capacity of an Indian micro, small, and medium enterprise steelmaker as equivalent to that of a German industrial conglomerate ignores the vast gulf in access to capital, technology, and historical responsibility for cumulative emissions between the two. Joost Pauwelyn’s scholarship on the legal compatibility of carbon border taxes with WTO rules highlights precisely this design flaw, questioning whether a uniform carbon price can ever be genuinely non-discriminatory when applied across such structurally unequal producers.
A further hypocrisy emerges when developing nations attempt to protect their own domestic green industries. India’s Production Linked Incentive (PLI) schemes, intended to build indigenous renewable and clean manufacturing capacity, faced WTO scrutiny in India – Certain Measures Relating to Solar Cells, where the Panel found India’s domestic content requirements (DCRs) inconsistent with Article III:4 of the GATT 1994 and the TRIMs Agreement. India’s available defences both failed: the Article III:8(a) government procurement exception was rejected because the relevant power purchase agreements constituted procurement of electricity, not of solar cells themselves, while the Article XX(j) short supply defence fell away for want of evidence that solar cells were globally scarce. Most significantly, India’s environmental motivation for the DCRs, building a domestic renewable sector under its Jawaharlal Nehru National Solar Mission, carried no legal weight. Yet the EU imposes a border-adjustment charge under the explicit justification of environmental necessity, and does so through a measure sophisticated enough to thread the chapeau of Article XX in a way India’s direct domestic content requirements structurally could not. The asymmetry is not incidental. Developing states are disciplined for deploying transparent green industrial policy tools, while developed states construct measures complex enough to insulate themselves from equivalent legal scrutiny.
IV. Comparative Perspective: The Erasure of ‘CBDR’
The clash here runs deeper than in the taxation context. International trade law is built on a rigid architecture of reciprocal, present tense obligations, whereas international environmental law increasingly incorporates the historically aware institutionalism needed to address a crisis whose causes are unevenly distributed across time and geography.
Central to this institutionalism is the principle of Common But Differentiated Responsibilities (“CBDR”), enshrined in Principle 7 of the Rio Declaration on Environment and Development 1992, which recognises that developed states bear a greater share of responsibility for global environmental degradation given their historical contribution to it. The Paris Agreement 2015 reaffirms this equity concern in Article 2.2, requiring that its implementation reflect equity and CBDR in light of different national circumstances. Read together, these instruments recognise both the historical responsibility of the Global North and the continuing right of the Global South to industrialise.
India’s own diplomatic posture reflects this concern directly. Commerce and Industry Minister Piyush Goyal, speaking at the Columbia India Energy Dialogue 2025, argued that expecting India, a country that has contributed only around three to three and a half percent of cumulative global carbon emissions while supporting roughly seventeen percent of the world’s population, to contribute to decarbonisation at the same level as a European company would be “patently unfair.” His broader point, that fragmentation in climate cooperation stems not from geography but from a refusal to recognise per capita emissions as the true benchmark of responsibility, captures the TWAIL objection to CBAM in miniature.
CBAM, on this reading, forces developing states to absorb the costs of the European Union’s own green transition by imposing uniform carbon standards on structurally unequal economies. In doing so, it erases the historical context of carbon emissions that CBDR was designed to preserve, treating a century of asymmetric industrialisation as though it never happened.
V. Towards a Balanced Multilateral Framework: Recognizing ‘Equivalent Climate Action’
Safeguarding climate ambition while preserving a fair multilateral trading order requires India to move beyond reactive opposition towards a framework of recognised equivalence. A genuinely multilateral response to carbon leakage cannot rest on coercive, unilaterally imposed tariffs; it must instead credit the substantive domestic efforts that exporting states already undertake.
India possesses precisely such a framework in the Perform, Achieve and Trade (“PAT”) scheme, established under the Energy Conservation Act, 2001, which imposes mandatory energy efficiency targets on designated industrial sectors and allows compliant units to trade efficiency certificates. The EU’s failure to credit the compliance costs Indian industries already bear under this efficiency-based system is inherently discriminatory, since it assumes, without justification, that only price-based carbon taxes constitute valid climate policy.
A more balanced framework would extend recognition to India’s developing Carbon Credit Trading Scheme (“CCTS”), introduced under the Energy Conservation (Amendment) Act, 2022. Mutual Recognition Agreements (“MRAs”) negotiated at the WTO, potentially formalised through the waiver mechanism available under GATT Article XXV, could allow credits earned under the CCTS to offset charges levied under CBAM. Such a pathway would preserve India’s sovereign policy space over its own decarbonisation trajectory while still addressing the EU’s underlying concern about carbon leakage, replacing international coercion with negotiated equivalence.
VI. Conclusion
The EU’s Carbon Border Adjustment Mechanism represents a radical pivot towards the unilateralisation of international economic and environmental law. By pricing carbon at the border according to standards it alone defines, the EU eliminates the multilateral gatekeeping that WTO jurisprudence, from US-Shrimp to US-Tuna II, was designed to preserve, and establishes what amounts to a unilateral decree over global climate compliance. While intended to uphold environmental integrity and prevent carbon leakage, the unreviewable shield of “environmental necessity” fails to distinguish between bona fide climate action and green protectionism. The estimated 20 to 25 percent tax burden threatened on affected Indian exports risks undermining essential developmental growth in an economy still industrialising.
International economic law must reconcile climate ambition with historical equity. Only by recognising domestic frameworks such as the PAT scheme and the CCTS through genuine mutual cooperation, rather than through retaliatory tariff escalation, can the international legal order ensure that the visible hand of the law continues to guide state conduct, protecting the Global South’s right to develop within an increasingly decarbonising global economy.
Pranjaye Deomani is a 2nd Year B.A. LL.B. (Hons.) student at National University of Study and Research in Law, Ranchi. His primary area of interest revolves around Insolvency Law
PC:Maxim Tolchinskiy/Unsplash
