EPICO and the Konrad-Adenauer-Stiftung’s Multinational Development Policy Dialogue have published a new study examining how Europe can protect industrial competitiveness, maintain credible carbon pricing and strengthen international climate cooperation.
The analysis identifies a central weakness of the EU’s Carbon Border Adjustment Mechanism (CBAM): while it helps protect European producers within the EU market, it offers no equivalent protection for exporters competing in markets without comparable carbon costs.
The study argues that Europe should neither weaken its carbon price nor continuously expand CBAM. Instead, it proposes a broader strategy built around three priorities:
- Protect industry: Extend transitional export protection beyond 2027 and assess a WTO-compatible, benchmark-based refund mechanism. Keep CBAM targeted at sectors facing genuine carbon leakage risks.
- Build partnerships: Direct a meaningful share of CBAM-related resources towards decarbonisation projects in partner countries, strengthen cooperation on emissions monitoring and recognise the different capacities of vulnerable economies.
- Unlock investment: Use guarantees, risk-sharing, long-term offtake agreements and co-investment to make low-carbon industrial projects financially viable.
The investment challenge is substantial: Europe accounts for around a quarter of the global pipeline of clean industrial projects, yet more than 90% have not reached a final investment decision.
The study concludes that carbon pricing and border protection alone cannot deliver industrial transformation. Europe needs to combine effective carbon leakage protection with investment opportunities and international cooperation, turning climate policy into a strategy that creates economic benefits at home and abroad.