To what extent can the EU's carbon border adjustment mechanism spur global climate action?

Mitigating climate change is a coordination problem of global scale. The cost of climate action is borne locally, while its benefits are shared internationally – creating incentives to free ride on others’ climate efforts. The European Union has one of the world’s most ambitious climate policies and the highest carbon prices, yet it accounts for only a small share of global carbon emissions. The challenge this presents is how to incentivise other countries to strengthen their domestic climate policies to achieve meaningful emissions reductions.

A new policy instrument, the EU’s carbon border adjustment mechanism (CBAM), has the potential to curb this free rider problem. In force since January 2026, CBAM encourages collective climate action by incentivising EU trading partners to align their level of climate policy ambition with that of the EU. Whether CBAM can effectively prompt such policy diffusion is a central question for global climate governance.

Our research finds that it can. Drawing on data including the development of carbon pricing mechanisms and trade exposure to CBAM-covered sectors, we estimate the effect of countries’ exposure to CBAM on their likelihood of adopting carbon pricing policies. We find that countries with greater trade exposure to CBAM are significantly more likely to adopt carbon pricing policies following the European Commission’s announcement of the carbon border measure in 2019.

CBAM generates positive climate policy spillovers abroad by encouraging a wider adoption of carbon pricing policies. However, these effects are concentrated among higher-income countries, indicating that developing countries face technical and institutional constraints in implementing similar mechanisms. In line with the principle of common but differentiated responsibilities, addressing the needs and capacities of lower-income economies will be essential to ensure a truly global and just transition.

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