EU Green Rules Risk Undermining the Spirit of Global Sustainability

The Sustainable Development Goals and the European Union's Carbon Border Adjustment Mechanism are often presented as part of the same global push towards sustainability. They are not.

The SDGs were negotiated through the United Nations on the understanding that sustainable development rests on three pillars: economic growth, social progress and environmental protection. They recognise that countries face very different development challenges and that poorer economies will need finance, technology and institutional support if they are to pursue climate goals without sacrificing growth.

CBAM starts from a different premise. It asks exporters to meet the EU's climate standards if they want access to its market. Whether those exporters have the resources to decarbonise or build the systems needed to demonstrate compliance is largely left to them. That is a significant departure from the SDG approach.

Narrow Focus
The European Union maintains that CBAM is necessary to prevent carbon leakage as free emission allowances are phased out by 2034. It has defended the mechanism in the WTO, the UN climate process, the G20 and its trade negotiations. Yet many developing countries remain unconvinced. From their perspective, CBAM is not simply a climate instrument. It is also a trade measure that shifts the cost of Europe's green transition onto its trading partners.

From the perspective of developing countries, however, CBAM represents a trade shock comparable to the reciprocal tariffs introduced under the Trump 2.0 administration. While the impact of those tariffs has been moderated to some extent by recent rulings of the US Supreme Court, despite continuing attempts to revive them through alternative legal routes, the consequences of CBAM could prove even more severe for many developing and least developed countries. Limited export diversification and heavy dependence on the EU market make these economies especially vulnerable.

The implications extend beyond trade. Reduced export earnings could slow progress towards several SDGs, particularly those related to economic growth, employment and poverty reduction, with knock-on effects for food security, social welfare and even environmental sustainability.

CBAM is only one element of a much broader regulatory framework by the European Union to embed sustainability standards into trade and business. Alongside CBAM, Brussels is rolling out the European Union Deforestation Regulation (EUDR), which bars imports of commodities linked to deforestation, as well as the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). The latter two extend the focus beyond emissions, requiring companies to disclose sustainability risks and, in many cases, take responsibility for environmental and human rights practices across their supply chains.

The Omnibus I Package has eased some of the compliance burden by narrowing the scope of these rules and raising the thresholds for companies that fall within them. These directives apply directly to non EU companies, including Indian firms, only if they meet specified turnover thresholds within the European Union. Even companies below those thresholds may face indirect compliance pressures, as European businesses increasingly require sustainability related data from suppliers to meet their own reporting and due diligence obligations.

Rising Barriers
Beyond these measures, several additional horizontal and sector specific regulations are expected in the coming years. Many will affect steel and aluminium, two of India's most important exports to the European Union and among the sectors already covered by CBAM. The EU is developing new standards for low carbon steel, product circularity and sustainability related product information through initiatives such as the Industrial Accelerator Act and the Eco-design for Sustainable Products Regulation. At the same time, it is considering tighter steel trade safeguards and possible restrictions on steel scrap exports.

The SDGs acknowledge that countries start from very different levels of development. That is why they emphasise finance, technology transfer and capacity building alongside ambitious goals. The EU's sustainability regulations take a different route. They set common standards for market access but leave much of the cost of meeting those standards to exporters, many of them in developing economies.
 
That inevitably raises difficult questions. Can countries be expected to meet increasingly demanding environmental standards without comparable support? Do such measures strike the right balance between climate ambition and development needs? And where do they sit within the rules based trading system of the World Trade Organization?

No one disputes the need for stronger climate action. The debate is about how that transition is managed and who bears its cost. If sustainability becomes a condition for market access without adequate support for those expected to comply, the line between climate policy and trade policy begins to blur. That is why critics increasingly ask whether these measures represent environmental leadership or the emergence of a new form of regulatory imperialism.