Russia Challenges EU’s Carbon Border Tax at WTO

Moscow alleges trade violations over the Carbon Border Adjustment Mechanism

The Russian Federation initiated a dispute with the European Union at the World Trade Organization (WTO) on May 19, 2025, challenging the EU’s Carbon Border Adjustment Mechanism. Russia claims the mechanism violates international trade rules.

Key Development

Russia’s complaint targets the EU’s Carbon Border Adjustment Mechanism (CBAM), referred to as the “CBAM Package.” It also challenges the allocation of free allowances within the EU Emissions Trading System (ETS), arguing this constitutes an export subsidy.

Specific aspects of the CBAM package challenged by **Russia** include transitional reporting duties, the methodology used to calculate emissions, the utilization of default values, certification and verification prerequisites, the phase-out of free allowances under the EU ETS, and the general structure of CBAM, as stated in the request for consultations, which is available here.

Legal Arguments

**Russia** argues the CBAM package violates the EU’s obligations concerning most-favoured-nation treatment, national treatment, and transparency under the General Agreement on Tariffs and Trade (GATT) of 1994. The claim also cites inconsistencies with the WTO Agreement on Import Licensing Procedures.

Additionally, **Russia** contends the CBAM package conflicts with the protocols of accession to the WTO of **Bulgaria**, **Croatia**, **Estonia**, **Latvia**, and **Lithuania**. The complaint further alleges that the EU’s allocation of free allowances under the EU ETS is a prohibited subsidy contingent upon export performance, violating the WTO Subsidies and Countervailing Measures Agreement.

Similar concerns have been raised by other WTO members, including worries about insufficient consideration of national climate measures, the use of default values and EU-determined methodologies, and discrimination based on country of origin. For example, several nations have expressed concerns that the CBAM disregards the Paris Agreement’s principle of Common but Differentiated Responsibilities.

Future Implications and EU Response

The EU is expected to adopt implementing acts to convert proposed default carbon prices from third countries into an effective carbon price per tonne of embedded emissions. The European Commission is anticipated to finalize secondary legislation on the recognition of foreign carbon prices and methodologies by the end of 2025.

If **Russia** pursues a WTO dispute settlement panel, the scope of the measures under scrutiny could broaden. The EU has not indicated any intention to modify CBAM’s operation following **Russia’s** claim. Therefore, CBAM remains in effect as initially designed. However, there is a chance of the EU adapting the CBAM framework voluntarily to preserve economic relations with critical trade partners such as **India**.

Global Reactions to CBAM

**Brazil**, **China**, and **India** have voiced criticisms of the EU’s CBAM. While none have initiated WTO dispute settlements, they argue that CBAM may contravene principles of international trade and environmental law.

**Indonesia**, along with **Japan**, **Korea**, **Paraguay**, **South Korea**, **Taiwan**, and **Türkiye**, have also expressed skepticism about CBAM’s consistency with WTO rules before the Trade in Goods Council.

According to a report by the European Parliament, CBAM revenue could reach €14 billion annually by 2030, providing a substantial source of income for the EU (European Parliament 2023).

Procedural Outlook

Under WTO rules, the consultation phase allows both parties to seek a mutually agreed solution. If no agreement is reached within 60 days, **Russia** can request a WTO panel to adjudicate the dispute. Due to the WTO Appellate Body being inoperative, any appeals are unlikely to be heard, potentially rendering any panel report unenforceable.

Stakeholder Impact

Companies exporting to the EU should closely monitor CBAM implementing rules, particularly those related to emissions methodologies and the recognition of foreign carbon pricing. Governments may use upcoming secondary legislation to propose recognition of their carbon pricing systems. Legal and policy advisors may find the WTO dispute provides guidance on the compatibility of border carbon adjustments with international trade rules.