Everyone agrees trade is a climate tool. Almost no one means the same thing
The United Nations Framework Convention on Climate Change (UNFCCC) held its first formal dialogue dedicated to trade and climate during the 64th session of its Subsidiary Bodies in Bonn, Germany — notable because trade had been kept largely outside formal climate negotiations for around three decades.
Governments broadly agreed that "trade can be a climate tool," but diverged sharply on what that phrase means in practice, particularly regarding unilateral trade measures like the European Union's Carbon Border Adjustment Mechanism (CBAM).
Developing-country blocs — including the Arab Group, Like-Minded Developing Countries (LMDC), the African Group and G77+China — argued that mechanisms like CBAM shift the cost of the climate transition onto countries least responsible for historical emissions, and some characterised such measures as a form of economic coercion or disguised protectionism.
The dialogue ended without agreement on specific outcomes but surfaced the deeper structural disagreement over green industrialisation — effectively, who gets to build the clean-technology industries of the future and under what trade rules.
EU Carbon Border Adjustment Mechanism (CBAM)
CBAM is a European Union policy that requires importers of select carbon-intensive goods to pay a levy corresponding to the embedded carbon emissions of those goods, calculated against the EU's internal carbon price under its Emissions Trading System (EU ETS). The EU frames it as a measure to prevent "carbon leakage" — the relocation of emissions-intensive production to countries with weaker climate regulation.
Key Details
- CBAM enters its definitive, cost-charging phase from 1 January 2026, becoming the first fully operational border carbon-adjustment mechanism in the world.
- Covered sectors include iron and steel, cement, fertilisers, aluminium, electricity and hydrogen.
- Developing countries argue CBAM shifts decarbonisation costs onto exporters who had no role in creating the historical emissions burden, and that it could function as a revenue-extracting trade barrier rather than a genuine climate instrument.
- CBAM is contested both at the WTO (over compatibility with non-discrimination trade rules) and within UNFCCC forums, including at COP30 discussions.
CBAM was the central flashpoint at the Bonn dialogue — the EU defended it as climate policy while developing nations, including China, characterised it (in the words captured at the dialogue) as raising "the price of the ferry" without ever providing "the boat," i.e., imposing carbon costs without first sharing the technology or finance needed to decarbonise.
CBDR-RC (Common But Differentiated Responsibilities and Respective Capabilities)
CBDR-RC is a foundational principle of international climate law, formalised in Article 3, Paragraph 1 of the UNFCCC adopted at the 1992 Rio Earth Summit. It holds that while all countries share a common responsibility to protect the climate system, developed countries — given their greater historical contribution to emissions and greater economic capacity — must take the lead in climate action.
Key Details
- The same paragraph explicitly states developed-country parties "should take the lead in combating climate change and the adverse effects thereof."
- CBDR-RC has since been reiterated across the Kyoto Protocol (1997) and the Paris Agreement (2015), though its operational meaning has been progressively diluted from a strict developed/developing binary toward more nationally-determined, self-differentiated commitments.
- At Bonn, CBDR-RC was invoked in at least three distinct ways by different blocs: African nations stressed a right to industrialise, G77+China warned against cost-shifting onto developing economies, and the LMDC bloc framed unilateral measures as coercive.
The Bonn dialogue is essentially a live contest over whether trade measures like CBAM honour or violate CBDR-RC — the EU argues its mechanism is origin-neutral and non-discriminatory, while developing countries argue it ignores differentiated historical responsibility altogether.
India's Stance on Unilateral Climate-Trade Measures
India has consistently opposed unilateral trade measures justified on climate grounds, arguing they are inconsistent with CBDR-RC and risk functioning as non-tariff barriers against developing-country exports, particularly in carbon-intensive sectors like steel and aluminium where India has significant trade exposure to the EU.
Key Details
- India has raised concerns over CBAM in WTO committees and multilateral climate forums, alongside countries such as China, Brazil and South Africa (the BASIC grouping).
- India's broader negotiating position favours multilaterally agreed, consensus-based climate-trade instruments over parallel unilateral mechanisms imposed by individual blocs.
India was aligned with the broader developing-country position articulated at Bonn by G77+China, the Arab Group and LMDC, even though the article does not attribute a specific India-only statement — the dialogue is a template for the kind of forum where India's standard climate-trade positions get tested multilaterally.
- The Bonn trade-climate dialogue was held at UNFCCC's 64th Subsidiary Bodies session; trade had been effectively excluded from formal UNFCCC negotiations for roughly 30 years prior.
- EU CBAM enters its definitive, charge-levying phase from 1 January 2026; covered sectors include iron/steel, cement, fertilisers, aluminium, electricity and hydrogen.
- CBDR-RC is codified in UNFCCC Article 3(1), adopted at the 1992 Rio Earth Summit, and reiterated in the Kyoto Protocol (1997) and Paris Agreement (2015).
- Key blocs at Bonn: China (five-point plan), Arab Group and LMDC (demanded ending unilateral measures or compensation), EU and allies (defended CBAM on technical/environmental grounds), Brazil (proposed a bridging "double-test" framework).
- The dialogue concluded without a negotiated outcome document.