Executive Summary

Countries are increasingly deploying unilateral measures such as carbon border adjustment mechanisms (CBAM) to advance domestic climate and industrial policy objectives. The European Union (EU) introduced the first CBAM in 2023, with its definitive regime beginning in 2026 (European Commission n.d.-a). A similar UK CBAM will take effect in 2027, while Australia, the US, Türkiye, and others are planning or considering similar measures. While these measures may support domestic transitions, their effects often extend beyond national borders, with implications for trade flows, market access, and competitiveness, particularly for developing countries. For example, India’s unwrought aluminium exports to the EU declined by 41.7 per cent in the year leading up to January 2026 (Climatora 2026), and steel exports have declined by 24.4 per cent in 2024–25 (Tyagi and Ghosh 2026), for which CBAM is one of several possible factors.

Globally, EU CBAM is projected to have a modest impact on emissions, with an estimated reduction of only 0.54 per cent (Dechezleprêtre et al. 2025), while generating EUR 9.1 billion in annual revenues by 2030 (Pleeck and Mitchell 2023). This is concerning, given the shortfall in climate finance from developed countries and the growing reliance on loans (rather than grants), which further increases developing countries’ debt burdens (Oxfam and CARE 2025). Calls to redistribute CBAM revenues have also been sidelined, adding to the distress (Scott 2026). In effect, the disproportionate burden such measures impose on developing countries, and their modest global emissions reduction, show the limitations and inequity of unilateral measures.

Climate forums — in particular, the UNFCCC — broadly recognise the climate–trade nexus, but it has remained a peripheral topic in discussions. The Global Mutirão decision (FCCC/PA/CMA/2025/19/Add.1) at the 30th Conference of the Parties (COP30) established a set of dialogues to be held at the 64th, 66th, and 68th subsidiary sessions to explore opportunities, challenges, and barriers to international cooperation on trade, with the participation of countries and key stakeholders, including the World Trade Organisation (WTO), UN Trade and Development (UNCTAD), and the International Trade Centre (ITC) (UNFCCC 2026). It was also decided to exchange experiences and views on related matters at a high-level event in 2028.

In June 2026, the first climate and trade dialogue was held at the 64th session of the Subsidiary Bodies (SB64) – an important first step. However, our analysis of countries’ statements at this dialogue reveals deep-seated differences between developed and developing countries over the dialogue’s nature and objectives. To bridge these differences, the UNFCCC needs a coordinated approach grounded in the principles of equity and Common but Differentiated Responsibilities and Respective Capabilities (CBDR-RC). Drawing on our analysis of countries’ statements and an extensive review of existing research and policy discussions, this brief proposes a roadmap that defines the UNFCCC’s role, recommends themes for forthcoming dialogues, and suggests a strategy that India can use to shape this evolving agenda.

Climate–trade under the UNFCCC: Key areas of divergence

• Trade and unilateral measures are anchored in Article 3.5 of the UNFCCC, which states that “measures taken to combat climate change, including unilateral ones, should not constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade” (UNFCCC 1992, art. 3, para. 5). However, trade was not included in the core negotiation process. Over the years, several developed countries have argued that the WTO and UNCTAD are the appropriate forums to address these issues. Unfortunately, the foundational principles of the UNFCCC and Paris Agreement, namely CBDR-RC and equity, are not articulated in the WTO or UNCTAD, which are guided by other principles (non-discrimination, fair competition, transparency, etc.).
• India was the first country to formally propose including unilateral trade measures as a provisional agenda item for COP17 in 2011 (Government of India 2011). However, consensus was not achieved, and the COP did not adopt it as an agenda item.
• The first climate and trade dialogue at SB64 represented an important step towards addressing the climate–trade nexus within the UNFCCC, bringing to the fore divergent views:
  • Countries differed on the right forum for these discussions. Developing countries called for a stronger UNFCCC role, anchored in Article 3.5 of the Convention and informed by equity, CBDR-RC, the right to sustainable development, and national circumstances, whereas developed countries emphasised facilitative dialogue that drew on, rather than duplicate, ongoing work at the WTO and other institutions.
  • Developing countries called for a Party-driven, outcome-oriented dialogue, as well as identifying corrective actions and cooperative alternatives. They also emphasised the need to assess the impact of these measures. However, developed countries proposed a non-negotiating dialogue, focused on exchanging views.
• This points to three challenges that are shaping the climate–trade debate: a knowledge gap in understanding of the accounting frameworks, associated costs, and impacts of unilateral measures; an implementation gap, linked to limited finance and technology, particularly in developing countries; and a governance gap, due to differences in institutions and policies across countries.

How, then, can a coordinated response be shaped?

• Role of the UNFCCC: We recommend that the UNFCCC play a stronger coordinating role in shaping the climate–trade nexus by establishing a Technical Standing Committee with experts from the WTO, UNCTAD, and the ITC, with balanced representation from developed and developing countries. Its mandate should be to:
  • Establish a shared understanding of unilateral measures and the core principles that should govern these measures.
  • Assess their impact on developing countries, identify implementation needs, and map existing methodologies.
  • Improve transparency by developing a voluntary reporting template to share information on objectives, sectoral coverage, emissions accounting methodologies, expected emissions impacts, and country-level implications for each measure.
  • Ensure that the measures are accompanied by predictable financing, technology transfer, and capacity building.
• Roadmap for the dialogues: We recommend that the forthcoming dialogues build a sequenced pathway from technical assessment to implementation, as highlighted in Figure ES1:
  • SB66 (2027): Agree on a mandate for the proposed Technical Standing Committee to assess the impacts and needs of developing countries, along with mapping existing methodologies.
  • SB68 (2028): Take stock of the committee’s findings and identify ways to address these needs through support in the form of climate finance, technology transfer, and capacity building.
  • 2028 high-level event: Endorse the outcomes of the SB dialogues and establish ‘climate and trade’ as a continuing area of work (as an agenda item) under the UNFCCC.
• India strategy: A SHIELD strategy can be adopted by India, with a focus on:
  • Strengthening the domestic Carbon Credit Trading Scheme
  • Harnessing climate finance and technology transfer
  • Calling for investment of revenues earned through CBAM measures into developing countries
  • Enhancing multilateral cooperation through UNFCCC–WTO coherence
  • Leveraging India’s domestic climate action
  • Diversifying export markets, particularly through South–South trade

Figure ES1. A roadmap for establishing a dedicated climate–trade agenda under the UNFCCC