The European Union’s (EU’s) Carbon Border Adjustment Mechanism (CBAM) is as divisive as it is novel. Where you stand, depends on where you sit. But whatever one’s position it is important to understand the implications and the potential response options of countries with affected industries.

In Pakistan, the discussion around a potential carbon levy, following the securing of IMF funding, has drawn significant attention.

However, many platforms have adopted a narrow, tax-centric perspective, focusing solely on its imposition rather than its broader implications. Instead, a holistic review is essential—one that considers its economic, environmental, and trade-related impacts.

This approach could provide valuable insights for the Ministry of Commerce, the Ministry of Climate Change & Environmental Coordination, and other relevant departments, helping them craft a balanced and strategic response.

For European policymakers, CBAM reflects the EU honouring its Paris Agreement commitments, ‘leading by example’ to lower carbon emissions where others lag behind, at no small cost to its own economy. European industries see it as applying the same rules to others that they are already subject to within the EU market.

For affected non-Europeans, the CBAM reflects a unilaterally imposed EU measure, with minimum consultation with ‘partner’ countries, arguably outside the World Trade Organization (WTO) rules. They portray the EU as overreaching to protect its own industries while imposing the costs of lowering global carbon emissions on other less well-off countries, undermining their industrialisation ambitions in a context of already low manufacturing employment and rapidly expanding populations.

CBAM is seen as blind to the resources available to developing countries to decarbonise, and going against the more country-driven process of Nationally Determined Contributions.

Characterized by some as a ‘green squeeze’ on countries dependent on energy-intensive exports to the EU for export earnings and employment, the EU’s response that CBAM is not a trade measure but a climate measure rings........

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