In June of this year, the European Parliament approved the Carbon Border Adjustment Mechanism (CBAM), which will tax imported goods with a high environmental footprint. This measure, which will gradually come into effect starting January 1, 2023, will initially impact exports of carbon-intensive products such as iron, steel, cement, and fertilizers, and will later extend to others like wood, paper, and food products.

While it is subject to review by the World Trade Organization (WTO), CBAM aligns with the European Union’s commitments to reduce greenhouse gas (GHG) emissions by 55% by 2030 compared to 1990 levels and to achieve carbon neutrality.

Green Protectionism

Green protectionism is becoming an increasingly common policy for addressing climate change. This has led to the implementation of measures affecting trade, either to align environmental regulations or to address pressure from sectors concerned about losing competitiveness against players not adhering to strict climate regulations. Some argue that these practices are inconsistent with the multilateral trading system and act as disguised restrictions on international trade. However, carbon taxes and border adjustment mechanisms are not the only tools available to prevent the trade of goods produced unsustainably.

Recently, the European Parliament approved a regulation requiring companies to verify that products imported into the EU have “deforestation-free” certifications. This primarily affects exports of meat, coffee, soybean oil, palm oil, wood, and derivatives such as paper, furniture, wine, leather, and other agri-food products. Some countries, like Brazil, have been sanctioned for failing to comply with this measure.

As consumers become more informed and aware of the environmental impact of their consumption, it is expected that environmental and social certifications and labels, such as forest care, carbon footprint, water footprint, energy efficiency, and product traceability, will become increasingly demanded. The European Union is not the only bloc applying these requirements, as the United States, the United Kingdom, Japan, and Canada are also discussing similar proposals.