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- The new US-EU Framework Agreement on Reciprocal, Fair, and Balanced Trade contains a paragraph in which Brussels commits to “work to provide additional flexibilities” around the EU Carbon Border Adjustment Mechanism (CBAM).
- Even before its introduction, European officials had characterized the CBAM as a non-trade measure aimed at strengthening European climate ambition and resisted including it in trade negotiations.
- The framework’s acknowledgment of US concerns grants Washington a degree of rhetorical validation not afforded to other EU trading partners, which may generate diplomatic ripple effects, encouraging others, particularly in the Global South, to press for comparable treatment.
The United States and the European Union jointly announced last week the creation of the Framework Agreement on Reciprocal, Fair, and Balanced Trade, which elaborates on a previous US-EU deal on tariffs and trade announced in late July. To the surprise of some observers, the framework contained a paragraph on the EU’s Carbon Border Adjustment Mechanism (CBAM), which requires countries account for greenhouse gas emissions in imports of specified goods. At a moment when the EU is facing intense criticism about the CBAM, including a challenge at the WTO and pushback from emerging economies in international climate negotiations, any soft-pedaling of previously hardline rules around the regulation is likely to create waves around the world.
The framework agreement, like others pursued by the Trump administration this year, is not a conventional free trade agreement with pages of legalistic terms and conditions but rather a compact list of political commitments setting out the parameters of the US-EU trade relationship. Among the 19 commitments included in the framework is a pledge that the EU will “work to provide additional flexibilities” in implementation of the CBAM, taking note of US concerns about its effect on small and medium enterprises (SMEs).
The preamble to the framework describes the broader agreement as a first step that can be expanded over time, but it is unclear if the document is meant as a foundation for a more formal trade arrangement. Yet even in its present form, some of the framework’s provisions are likely to carry significant practical consequences. The language on the CBAM’s flexibility, for example, despite its vagueness, marks an evolution in Brussels’ position on the relationship between the regulation and its trade policy, which up until this point has not been a topic European officials have been amenable to including in trade negotiations.
CBAM Concerns
TheCBAM, introduced in October 2023, requires importers of specified carbon-intensive goods—including steel, aluminum, cement, fertilizers, and electricity—to purchase certificates priced in line with the EU Emissions Trading System, therefore paying for the greenhouse gas emissions generated in their production. The policy has a phased implementation: an initial reporting period runs until 2026, during which importers must disclose emissions data without financial obligations. A transitional phase, involving partial fee payments, will follow, with full application scheduled for 2034. Even before it was enacted, however, the CBAM provoked sustained criticism from trading partners.
A frequent theme of this criticism has been the technical and administrative burdens associated with compliance with the regulation, which requires sophisticated monitoring, reporting, and verification (MRV) of embedded emissions on terms deemed acceptable to European regulators. Critics have observed that meeting this compliance burden will be easier for multinational firms with deep pockets and economies of scale than for SMEs.
A second critique of the CBAM, originating primarily from the Global South, characterizes the regulation as a form of green protectionism that will create higher barriers on exports from developing countries that bear little responsibility for the climate crisis and that lack plausible pathways to industrial decarbonization. For this reason, developing country governments have argued for differential treatment under the CBAM, including exemptions for least-developed countries.
These criticisms have not gone entirely unheeded. Earlier this year, the European Commission (EC) proposed amending the mechanism’s scope so that it would apply only to the largest importers of eligible goods by volume—a so-called de minimisthreshold. This change is likely to be passed into law by the European Parliament in the coming months. But European officials have offered no indication that they are amenable to modifying the CBAM to limit its application or reduce compliance requirements based on the income level of the exporting country or the size of the exporting firm. To the contrary, Brussels has been insistent that both fairness and WTO rules require goods to be treated identically under the CBAM, except to the extent the exporting country has implemented a carbon price that can be deducted from the CBAM fee.[1]
US Deal: No Concrete Modifications, but a Concession Nonetheless
The text of the framework does not commit the EU to additional modifications to the CBAM, even under the loose terms on which the White House pursues trade deals. The pledge to “work to provide additional flexibilities” is so indeterminate as to lack enforceable criteria.
Any substantive change to the CBAM would fall outside the unilateral authority of the EC or the EU president, requiring instead a formal legislative process. The proposed increase in the de minimis threshold, for example, is embedded within a broader omnibus legislative package advanced by the EC. It is possible that Brussels could ease the administrative burden of the CBAM without modifying the regulation itself, for example, by providing more flexibility around MRV requirements, but such changes would presumably not be done on a country-specific basis.
It is highly unlikely that Brussels would pursue additional modifications designed to grant the United States unique exemptions or special treatment. Such a move would run counter to the EU’s consistent position that the CBAM is a domestic measure aimed at preventing carbon leakage and enabling climate ambition, not a trade policy, and that EU legislation is non-negotiable in trade talks. It would also provoke significant backlash from other trading partners and open the door to additional requests for carve-outs.
At the same time, acknowledging US concerns related to American small businesses grants Washington a degree of rhetorical validation of criticism of the mechanism that has not been extended to other governments; a gesture that is likely to be received unfavorably in many foreign capitals. Going forward, many EU trading partners may seek similar commitments from Brussels. Tellingly, one Indian publication has already characterized the framework as “raising hopes for India” to obtain similar concessions in ongoing FTA negotiations.
Should the EU introduce future modifications to the CBAM that could plausibly be associated with the US-EU arrangement, even if framed as geographically or income-neutral, such changes could feed the already widespread allegations that Brussels is responsive to Washington in a way it is not to the rest of the world, even when it means disregarding core trade principles. Whether such allegations are justified is open to debate, but the framework itself leaves little question that European officials view validating some US criticism of the CBAM as an acceptable price to pay to maintain access to the US market.
[1] This position was reportedly a sticking point in US-EU negotiations over a sectoral deal for low-carbon steel and aluminum during the Biden administration, during which EU officials rejected a US request that steel and aluminum exports be exempted from the CBAM as part of the proposed arrangement.
