ESCWA Publication: E/ESCWA/CL3.SEP/2026/TP.2
Country: Arab region
Publication Type: Information material
Cluster: Shared Economic Prosperity
Focus Area: Trade & regional connectivity
Initiatives: Economic Statistics and National Accounts
SDGs: Goal 17: Partnerships for the Goals
Keywords: Arab countries, Climate change, Competitiveness, Economic aspects, Energy transfer, Environmental policy, Environmentally sound products, European federation, Exports, Foreign trade, Laws and regulations, Recommendations, Risk assessment, Tariffs, Tax systems, Technology transfer, Tradable emission entitlements, Trade policy, Carbon footprint
Trading under the Carbon Border Adjustment Mechanism: Risks and policy options for Arab economies
June 2026
The Carbon Border Adjustment Mechanism (CBAM), introduced under the “Fit for 55” package of the European Union climate plan, extends the scope of the European Union Emissions Trading System by applying carbon costs to imports, so as to prevent carbon leakage and align foreign producers with European climate standards. Effective from 2026, CBAM targets six carbon-intensive sectors. While it supports global decarbonization efforts, it also raises important challenges for trade partners. For Arab countries, CBAM poses risks to export competitiveness in sectors reliant on carbon-intensive production, especially in the absence of domestic carbon pricing systems and under-developed renewable energy sector. Compliance costs, administrative burdens, and limited access to finance and clean technologies may further constrain adaptation. However, CBAM could encourage gradual industrial upgrading and energy transition.
The present technical paper describes and analyses CBAM-related risks to Arab exports using the latest trade data and CBAM regulations. The ad valorem equivalent of CBAM costs is expected to be substantial for many Arab exports, potentially eroding the benefits of existing European Union-Arab free trade agreements. The paper emphasizes the need for rigorous country- and sector-specific quantitative analysis to determine optimal national carbon tax levels and design tailored public support programmes aimed at mitigating adjustment costs and facilitating adaptation. Such analysis is also essential to assess how carbon-related financial revenues can be effectively recycled to support the modernization of production processes, ensure compliance with CBAM requirements, and enhance export competitiveness. The paper also provides guidance on key actions and reforms that Arab countries should initiate to adapt to this new framework of international trade regulation. In this evolving environment, exporters are now confronted with a wide range of market-entry barriers, of which tariffs represent only a small part.
Related content
Trade & regional connectivity
The Carbon Border Adjustment Mechanism (CBAM), introduced under the “Fit for 55” package of the European Union climate plan, extends the scope of the European Union Emissions Trading System by applying carbon costs to imports, so as to prevent carbon leakage and align foreign producers with European climate standards. Effective from 2026, CBAM targets six carbon-intensive sectors. While it supports global decarbonization efforts, it also raises important challenges for trade partners. For Arab countries, CBAM poses risks to export competitiveness in sectors reliant on carbon-intensive production, especially in the absence of domestic carbon pricing systems and under-developed renewable energy sector. Compliance costs, administrative burdens, and limited access to finance and clean technologies may further constrain adaptation. However, CBAM could encourage gradual industrial upgrading and energy transition.
The present technical paper describes and analyses CBAM-related risks to Arab exports using the latest trade data and CBAM regulations. The ad valorem equivalent of CBAM costs is expected to be substantial for many Arab exports, potentially eroding the benefits of existing European Union-Arab free trade agreements. The paper emphasizes the need for rigorous country- and sector-specific quantitative analysis to determine optimal national carbon tax levels and design tailored public support programmes aimed at mitigating adjustment costs and facilitating adaptation. Such analysis is also essential to assess how carbon-related financial revenues can be effectively recycled to support the modernization of production processes, ensure compliance with CBAM requirements, and enhance export competitiveness. The paper also provides guidance on key actions and reforms that Arab countries should initiate to adapt to this new framework of international trade regulation. In this evolving environment, exporters are now confronted with a wide range of market-entry barriers, of which tariffs represent only a small part.
