The EU’s Carbon Border Adjustment Mechanism (CBAM) represents a significant shift in aligning international trade with climate objectives by imposing carbon pricing on imported goods. While designed to prevent carbon leakage, its current structure risks disproportionately affecting developing economies, which often lack the financial and technological resources to decarbonise carbon-intensive industries as swiftly as high-income nations.
By focusing primarily on Scope 1 emissions in its carbon accounting methodology, CBAM may create trade distortions that penalise cleaner, yet structurally different, production models – particularly those based on renewable electricity or biofuels common in Global South countries. As CBAM transitions from its initial reporting phase (2023–2025) to full implementation in 2026, a critical window for policy refinement remains open. The G20, encompassing both industrialised and emerging economies, is uniquely positioned to promote dialogue and advocate for adjustments that make CBAM more inclusive, science-based and sensitive to diverse development trajectories and regional decarbonisation pathways.
CBAM’s core mechanism is straightforward: it imposes a fee on imports equivalent to what EU producers pay under the bloc’s Emissions Trading System (ETS). The levy is calculated based on emissions linked to imports, including direct emissions from fuel combustion and the production process (Scope 1), indirect emissions from electricity used in production (Scope 2) for certain products and emissions embedded in input materials if they are themselves covered by CBAM (upstream Scope 3). While this approach ensures European industries remain competitive, it fails to account for the vast differences in decarbonisation capabilities between developed and developing nations.
By focusing on Scope 1 emissions across all covered goods, CBAM exacerbates the disparity between Global North and South countries. With their advanced production methods, high-income nations naturally emit less per unit of output, giving them an inherent advantage. Additionally, substantial public and private investment often supports their transition to low-carbon production. For economies such as Brazil, where industrial modernisation has been hampered by decades of deindustrialisation and financial constraints, the path to decarbonisation is significantly more complex. Many factories rely on older machinery and, despite improvements in energy efficiency, adopting advanced low-emission technologies remains financially out of reach in the short term.
Yet Brazil has two important competitive advantages that are not fully recognised in the EU’s current emissions accounting system: a predominantly renewable electricity grid and nature-based energy solutions. As CBAM aims to encourage cleaner industrial production in non-EU countries, it must acknowledge and incorporate diverse decarbonisation routes that reflect regional specificities, including those that do not align with traditional European solutions.
Brazil’s clean electricity mix is a key asset that should be properly accounted for within CBAM. While major economies are targeting high shares of renewable electricity by 2050, Brazil already derives 89% of its electricity from renewable sources, providing a distinct competitive advantage, particularly in electricity-intensive sectors such as aluminium production. Globally, electricity accounts for roughly two-thirds of total emissions in the aluminium sector (from mining to finished products). Due to its reliance on hydropower, Brazil produces aluminium with a carbon intensity approximately 2.5 times lower than the global average. Fully incorporating Scope 2 emissions in CBAM’s methodology would redefine Brazil’s positioning, shifting its perception from a high-carbon competitor to one of the world’s cleanest producers.
Beyond aluminium, industrial decarbonisation is increasingly shifting towards electrification. According to the International Energy Agency, electrification is a key strategy for reducing emissions in heavy industry. If CBAM aims to drive genuine decarbonisation, it must account for indirect emissions from industrial electricity consumption to ensure fair assessment across regions.
Additionally, Brazil’s capacity to produce sustainable industrial fuels – such as biomethane, biomass and charcoal – offers another unique decarbonisation route. These renewable sources operate within a natural carbon cycle, where CO₂ is absorbed during plant growth and released when used for energy, significantly lowering net emissions compared to fossil fuels. Charcoal, for example, is derived from eucalyptus, which absorbs CO₂ during growth, creating a balanced carbon cycle when properly managed. Biomethane, produced from the decomposition of agricultural residues, animal manure and other organic waste, captures methane that would otherwise be released into the atmosphere and converts it into a renewable energy source. Additionally, the plant-based waste used in biomethane production has already absorbed CO₂ during its growth, effectively closing the carbon loop. Similarly, biomass consists of agricultural and forestry residues that maintain a sustainable carbon cycle. However, for these solutions to be recognised under CBAM, the EU must adapt its carbon accounting to reflect their full life-cycle benefits, particularly the role of biogenic carbon flows.
CBAM has the potential to be a powerful tool for global decarbonisation, but only if it moves beyond a Eurocentric framework and embraces solutions tailored to different regional contexts. As a forum that brings together the world’s largest economies, including both EU and non-EU members, the G20 offers a unique platform to harmonise methodologies, promote knowledge exchange and advocate for the mutual recognition of diverse decarbonisation strategies.
For policymakers and researchers alike, a key priority is ensuring that global carbon pricing architectures reflect geographic and technological diversity. Coordinated action within the G20 can help, for example, to elevate the importance of incorporating Scope 2 emissions for all products and recognising biogenic carbon within CBAM’s accounting framework. Through these efforts, the G20 can help prevent emerging trade distortions and foster a CBAM framework that is environmentally effective and developmentally inclusive.
Commentary
Recognising diverse decarbonisation routes: Insights from the Brazilian case on CBAM’s carbon accounting gaps
G20 cooperation can help prevent trade distortions.
The EU’s Carbon Border Adjustment Mechanism (CBAM) represents a significant shift in aligning international trade with climate objectives by imposing carbon pricing on imported goods. While designed to prevent carbon leakage, its current structure risks disproportionately affecting developing economies, which often lack the financial and technological resources to decarbonise carbon-intensive industries as swiftly as high-income nations.
By focusing primarily on Scope 1 emissions in its carbon accounting methodology, CBAM may create trade distortions that penalise cleaner, yet structurally different, production models – particularly those based on renewable electricity or biofuels common in Global South countries. As CBAM transitions from its initial reporting phase (2023–2025) to full implementation in 2026, a critical window for policy refinement remains open. The G20, encompassing both industrialised and emerging economies, is uniquely positioned to promote dialogue and advocate for adjustments that make CBAM more inclusive, science-based and sensitive to diverse development trajectories and regional decarbonisation pathways.
CBAM’s core mechanism is straightforward: it imposes a fee on imports equivalent to what EU producers pay under the bloc’s Emissions Trading System (ETS). The levy is calculated based on emissions linked to imports, including direct emissions from fuel combustion and the production process (Scope 1), indirect emissions from electricity used in production (Scope 2) for certain products and emissions embedded in input materials if they are themselves covered by CBAM (upstream Scope 3). While this approach ensures European industries remain competitive, it fails to account for the vast differences in decarbonisation capabilities between developed and developing nations.
By focusing on Scope 1 emissions across all covered goods, CBAM exacerbates the disparity between Global North and South countries. With their advanced production methods, high-income nations naturally emit less per unit of output, giving them an inherent advantage. Additionally, substantial public and private investment often supports their transition to low-carbon production. For economies such as Brazil, where industrial modernisation has been hampered by decades of deindustrialisation and financial constraints, the path to decarbonisation is significantly more complex. Many factories rely on older machinery and, despite improvements in energy efficiency, adopting advanced low-emission technologies remains financially out of reach in the short term.
Yet Brazil has two important competitive advantages that are not fully recognised in the EU’s current emissions accounting system: a predominantly renewable electricity grid and nature-based energy solutions. As CBAM aims to encourage cleaner industrial production in non-EU countries, it must acknowledge and incorporate diverse decarbonisation routes that reflect regional specificities, including those that do not align with traditional European solutions.
Brazil’s clean electricity mix is a key asset that should be properly accounted for within CBAM. While major economies are targeting high shares of renewable electricity by 2050, Brazil already derives 89% of its electricity from renewable sources, providing a distinct competitive advantage, particularly in electricity-intensive sectors such as aluminium production. Globally, electricity accounts for roughly two-thirds of total emissions in the aluminium sector (from mining to finished products). Due to its reliance on hydropower, Brazil produces aluminium with a carbon intensity approximately 2.5 times lower than the global average. Fully incorporating Scope 2 emissions in CBAM’s methodology would redefine Brazil’s positioning, shifting its perception from a high-carbon competitor to one of the world’s cleanest producers.
Beyond aluminium, industrial decarbonisation is increasingly shifting towards electrification. According to the International Energy Agency, electrification is a key strategy for reducing emissions in heavy industry. If CBAM aims to drive genuine decarbonisation, it must account for indirect emissions from industrial electricity consumption to ensure fair assessment across regions.
Additionally, Brazil’s capacity to produce sustainable industrial fuels – such as biomethane, biomass and charcoal – offers another unique decarbonisation route. These renewable sources operate within a natural carbon cycle, where CO₂ is absorbed during plant growth and released when used for energy, significantly lowering net emissions compared to fossil fuels. Charcoal, for example, is derived from eucalyptus, which absorbs CO₂ during growth, creating a balanced carbon cycle when properly managed. Biomethane, produced from the decomposition of agricultural residues, animal manure and other organic waste, captures methane that would otherwise be released into the atmosphere and converts it into a renewable energy source. Additionally, the plant-based waste used in biomethane production has already absorbed CO₂ during its growth, effectively closing the carbon loop. Similarly, biomass consists of agricultural and forestry residues that maintain a sustainable carbon cycle. However, for these solutions to be recognised under CBAM, the EU must adapt its carbon accounting to reflect their full life-cycle benefits, particularly the role of biogenic carbon flows.
CBAM has the potential to be a powerful tool for global decarbonisation, but only if it moves beyond a Eurocentric framework and embraces solutions tailored to different regional contexts. As a forum that brings together the world’s largest economies, including both EU and non-EU members, the G20 offers a unique platform to harmonise methodologies, promote knowledge exchange and advocate for the mutual recognition of diverse decarbonisation strategies.
For policymakers and researchers alike, a key priority is ensuring that global carbon pricing architectures reflect geographic and technological diversity. Coordinated action within the G20 can help, for example, to elevate the importance of incorporating Scope 2 emissions for all products and recognising biogenic carbon within CBAM’s accounting framework. Through these efforts, the G20 can help prevent emerging trade distortions and foster a CBAM framework that is environmentally effective and developmentally inclusive.
* The views expressed in T20 blog posts are those of the author/s.
24 Jul 2025
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