The Carbon Border Adjustment Mechanism (CBAM) is a climate policy tool introduced by the European Union (EU) to curb carbon leakage and promote global emissions reductions. CBAM essentially places a carbon price on imports of certain goods based on the embedded carbon emissions in their production, mirroring the EU’s domestic Emissions Trading System (EU ETS) (Bürgin (2021).

The transitional phase of CBAM runs from October 1, 2023, to December 31, 2025. During this period, reporting is mandatory, but no financial adjustments are made. However, starting January 1, 2026, importers will be required to purchase CBAM certificates to cover the carbon emissions embedded in their imported goods (Troitiño, 2023).

CBAM currently targets six carbon-intensive sectors. These are cement, aluminum, iron and steel, fertilizers, hydrogen, and electricity (Kassim et al. (2024). Many developing countries, including Uganda, are involved in the production or processing of CBAM-covered goods, even if they do not directly export these commodities to the European Union. While this may indicate limited direct exposure to CBAM in terms of export taxation, the indirect effects on their economies can be substantial.

First, developing countries may experience reduced competitiveness of their exports to the EU particularly for semi processed or intermediate goods embedded in value chains ending in CBAM-regulated sectors. Second, there is the challenge of increased compliance costs, especially where exporters are required to disclose emissions data or align with EU carbon standards. Third, diversion of investment flows is likely, with capital moving toward countries that already implement carbon pricing or have the institutional capacity to manage emissions transparently.

Moreover, an often-overlooked implication is the risk of exclusion from global value chains (GVCs). As multinational firms seek to green their supply chains to avoid CBAM-related costs, countries like Uganda which may lack robust emissions data systems could face marginalization from high value export networks, even without directly trading CBAM-targeted goods with the EU.

This raises concerns about carbon-driven trade fragmentation, where climate policy unintentionally deepens the development gap between countries with strong institutional capacity and those still building basic climate governance infrastructure.

Aims and challenges of CBAMS

The primary objective of the Carbon Border Adjustment Mechanism is to level the playing field by ensuring that European producers are not disadvantaged by imports from countries with less stringent carbon regulations (European Commission, 2021; Rabobank, 2021). By applying an equivalent carbon cost to imported goods, CBAM aims to prevent carbon leakage, a scenario where production shifts to jurisdictions with weaker climate policies to avoid carbon costs (Majanen 2024).

Recent analysis by the OECD (2025) highlights that emissions-intensive sectors such as cement, steel, and aluminum remain at elevated risk when carbon price asymmetries persist, underscoring the importance of CBAM in preserving competitiveness while discouraging relocation to low-regulation regions. However, CBAM also has an implicit function: it seeks to incentivize the adoption of carbon pricing systems globally, especially in developing countries, by aligning trade incentives with environmental performance (Kassim et al., 2024; European Commission, 2021).

This raises several critical challenges:

• Implementation complexity: How can emissions be accurately measured across diverse jurisdictions?
• Green protectionism: Is CBAM a hidden form of trade protectionism in the name of climate policy?
• Green colonialism: Are wealthier nations enforcing climate standards without considering developmental realities?
• Risk of trade retaliation: Will countries retaliate with countermeasures, escalating trade disputes?

CBAMS impact outside the EU

There is growing debate over the impacts of CBAM on low- and middle-income countries. Bellora and Fontagné (2023) suggest that while CBAM may reduce carbon leakage, it could also negatively impact exporters in developing countries.  Gu et al. (2023) highlight the potential for CBAM to distort global trade flows, particularly in value chains that cross multiple jurisdictions. Similarly, Beaufils et al., (2023) identify countries most exposed to CBAM especially those highly reliant on the EU as an export market.

This evidence underscores the urgency of support mechanisms. These could include the Redistribution of CBAM revenues to fund climate-resilient infrastructure in vulnerable economies and conditional financial assistance to strengthen institutional capacity for carbon accounting, reporting, and mitigation planning in the Global South.

CBAM currently targets six carbon-intensive sectors. They include cement, aluminum, iron and steel, fertilizers, hydrogen, and electricity. Photos/Courtesy

Way forward

CBAM represents a significant evolution in climate policy by linking international trade with environmental responsibility. While its objective is to curb carbon leakage and encourage global decarbonization, the design and implementation of CBAM must be sensitive to the developmental contexts of vulnerable economies, including Uganda. Without adequate support and flexibility, CBAM could unintentionally deepen global inequalities under the guise of environmental integrity.

For Uganda, the immediate impact of CBAM may seem limited, as the country does not export significant volumes of CBAM-covered goods such as cement, steel, or aluminum directly to the EU. However, the indirect effects could be substantial. Uganda is increasingly integrated into regional and global value chains that serve EU markets. Over time, exporters of processed agricultural goods, manufactured inputs, or minerals could face barriers if they cannot provide carbon transparency or meet emission standards required under CBAM. Moreover, foreign investment could shift away from countries like Uganda toward economies with stronger climate compliance mechanisms and carbon pricing frameworks.

The policy implications for Uganda are clear. First, there is a need to build institutional capacity to measure, report, and verify emissions across key sectors. Second, Uganda must anticipate CBAM spillovers by aligning national standards with global climate reporting systems. Third, the government should proactively engage in international negotiations to advocate for transitional support, technology transfer, and fair revenue-sharing mechanisms under CBAM. Fourth, there is an opportunity to leverage CBAM as a driver of green industrial policy, using it to strengthen domestic climate laws, attract climate finance, and modernize the country’s energy and manufacturing sectors.

Ugandan policymakers should indeed pay close attention. While CBAM poses risks, it also offers a chance to position Uganda as a climate-compliant trade partner and to transition toward sustainable economic development. The key is to act early by investing in carbon data systems, upskilling institutions, and integrating carbon awareness into national trade and industrial strategies.

REFERENCES

Beaufils, T., Ward, H., Jakob, M., & Wenz, L. (2023). Assessing different European Carbon Border Adjustment Mechanism implementations and their impact on trade partners. Communications Earth & Environment, 4(1), 131.

Bellora, C., & Fontagné, L. (2023). EU in search of a Carbon Border Adjustment Mechanism. Energy Economics, 123, 106673.

Bürgin, A. (2021). The european commission. In Environmental Policy in the EU (pp. 93-109). Routledge.

Gu, R., Guo, J., Huang, Y., & Wu, X. (2023). Impact of the EU carbon border adjustment mechanism on economic growth and resources supply in the BASIC countries. Resources Policy, 85, 104034.

Kassim, H., Connolly, S., Alayrac, P., & Uzunalioglu, M. (2024). The administration of the European Commission. In Handbook on European Union Public Administration (pp. 64-94). Edward Elgar Publishing.

Majanen, P. M. (2024). Economic incentives for environmentally sustainable growth: Carbon pricing in OECD countries.

Ramiro Troitiño, D. (2023). The European Commission, the Council, and the European Parliament: Differentiated theoretical frame for the digital revolution. In Digital development of the European Union: An interdisciplinary perspective (pp. 349-361). Springer.