THE European Union’s Carbon Border Adjustment Mechanism (CBAM) aims to align the carbon pricing of imported goods with that of domestic production to prevent carbon leakage and encourage cleaner industrial practices globally. Adopted in May 2023, CBAM will be fully implemented by January 2026, following a transitional phase starting in October 2023. Initially, the mechanism targets six sectors: cement, iron and steel, aluminium, fertilizers, electricity and hydrogen. The implications for global trade, particularly for countries like Pakistan, are significant.
CBAM has profound implications for global trade, especially for countries exporting carbon-intensive goods to the European Union. For Pakistan, key exports such as textiles, leather and pharmaceuticals could face increased costs due to their carbon emissions. Pakistani industries, which are heavily reliant on fossil fuels, may see reduced competitiveness in the EU market unless they invest in green technologies. This presents a dual challenge: the immediate economic burden of compliance and the long-term need for sustainable production practices.
While CBAM poses economic challenges, it also offers opportunities for Pakistan to enhance its market access and competitiveness in an increasingly environmentally conscious global economy. Adopting cleaner technologies and sustainable practices can help Pakistani industries meet CBAM requirements, potentially opening new avenues for growth and market expansion. This transition aligns with global trends toward sustainability and can position Pakistan favourably in international markets.
The CBAM aims to ensure that imported goods face the same carbon costs as domestic products. While this could increase export costs for Pakistan and reduce competitiveness, it also encourages industries to innovate and adopt greener technologies.
Pakistan’s response to CBAM should be strategic, focusing on creating a supportive environment for transitioning to low-carbon production. This involves incentives for clean energy, implementing carbon pricing, and fostering international cooperation for technology transfer. Engaging with the EU for phased implementation and technical assistance is also crucial.
Policy recommendations include advocating for a tailored approach considering Pakistan’s lower emissions and development status. Training programs and advisory services are needed to help businesses navigate CBAM regulations. Sectors like textiles, iron and steel, and fertilizers should prioritize carbon reduction, with investments in renewable energy and carbon capture technologies. Despite the challenges, CBAM opens new trade opportunities. By aligning with global sustainability trends, Pakistan can enhance trade relations with the EU and other environmentally-focused markets. Diversifying export markets and negotiating trade agreements with sustainability clauses can further strengthen economic resilience. CBAM represents a major shift in global trade policy, highlighting the need for carbon accountability. A proactive approach will help Pakistan mitigate economic impacts, embrace sustainability, and improve its global market position.
Funded by the EU and implemented by the International Trade Centre, the Growth for Rural Advancement and Sustainable Progress (GRASP) project is working to enhance the business environment for SMEs in Pakistan, integrating climate change and sustainability into its initiatives.
—The writer, based in Islamabad, is a contributing columnist.
