Russia targets EU carbon policies in WTO showdown

Russia launched a formal dispute at the World Trade Organization May 19 against the European Union's carbon border tax and emissions trading system, labeling these mechanisms as "discriminatory."

In a request for consultations that was circulated to WTO members, Russia said these policies "do not concern a genuine environmental measure, but are rather highly trade-restrictive and discriminatory mechanisms established by the EU under the pretext of climate policy."

This marks the first major legal challenge to the EU's flagship climate policy at the WTO and comes a few months after China and its BRICS allies expressed strong views on these developments. This signals escalating challenges in global climate multilateralism, adding to trade tensions.

China has previously raised concerns about CBAM within the WTO, but has not filed an official WTO complaint.

The EU has always insisted that CBAM is compliant with WTO rules as it creates a level playing field that helps the environment and climate and does not create barriers to trade.

Russia, as part of the dispute process, has requested consultations with the EU, claiming that the bloc's CBAM and ETS are "inconsistent" with multiple WTO agreements, the WTO said in a statement.

The CBAM requires importers of carbon-intensive goods, including steel, aluminum, cement, fertilizers, hydrogen, and electricity, to buy certificates corresponding to the carbon price that would have been paid had the goods been produced under the EU's carbon pricing rules.

Russia is a major exporter of several CBAM-covered products to the EU, particularly steel, aluminum, and fertilizers.

CBAM is currently operational in the EU in a "transitional phase," where importers must report emissions embedded in relevant products they bring into the bloc. However, from Jan. 1, 2026, under its "definitive phase," importers will be liable for the emissions embedded in their imports.

Carbon leakage, free allowances

Russia's complaint also targets what it characterizes as an export subsidy within the EU ETS, linked to free allowances granted to certain EU industries to prevent "carbon leakage" — where production shifts to regions with less-stringent climate policies.

Russia says this is "a prohibited subsidy contingent upon export performance."

Under the EU ETS, industrial installations considered to be at significant risk of carbon leakage receive a higher share of free allowances compared with the other industrial installations.

The main purpose of the CBAM is to reduce the risk of carbon leakage and encourage importer nations to introduce their own carbon markets, limiting CBAM's impact on their traded goods.

The consultation request marks the official start of a WTO dispute proceeding. This initial phase provides disputing parties a platform to engage in dialogue and potentially reach a mutually acceptable resolution, avoiding further legal proceedings. Should these discussions fail to settle the matter within 60 days, the complaining party has the option to escalate by seeking a formal ruling from a WTO dispute panel.

In July, the BASIC bloc, which represents four newly industrialized countries — Brazil, South Africa, India, and China — also said that rich nations' moves to adopt carbon border taxes and trade-distorting subsidies were "discriminatory."

An S&P Global Commodity Insights analysis found that Brazil, Canada, South Africa, and Turkey will be most exposed to the mechanism, with iron and steel being the biggest sectors targeted.

Global carbon pricing

Carbon prices vary significantly on a country-to-country basis due to the differing sectoral scope of many emissions trading systems globally.

Carbon permits under the EU Emissions Trading System are currently around five times more expensive than compliance prices in China, the world's industrial powerhouse.

Platts, part of Commodity Insights, assessed EU Allowances for December 2025 at Eur70.51/mtCO2e ($79.27/mtCO2e) May 19. This compares with China's compliance emission allowance, which was valued at Yuan 70.42/mtCO2e ($9.79/mtCO2e) May 16, according to the Shanghai Environment and Energy Exchange.