Brasília to Brussels: We’ll Price Our Carbon, Not Pay Your Tariff
- Jonathan Rincon Lopez
- 6 days ago
- 5 min read
How the EU’s CBAM is spurring global alignment on carbon pricing
Welcome back to Decarb Digest. In today’s edition:
Brazil’s new carbon market in response to the EU’s CBAM and what its 2026 rollout means for global trade; as well as how they are leveraging this response in coalition-building ahead of COP30.
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There is a story that has been quietly brewing this year without much acknowledgement of the broad market mechanisms it points to. As many of you know, the European Union (EU) has been planning for the rollout of their Carbon Border Adjustment Mechanism (CBAM) for some time now. This mechanism is essentially a carbon tax at its border on imported products from countries that either lack carbon pricing, or have pricing that is much lower than what the EU has set up. It is meant to level the playing field, and protect domestic industries that are investing heavily into decarbonization and aligning with the bloc’s ambitions to reach carbon neutrality by 2050. There was a lot of debate on how the world was going to respond to this carbon tariff on such a large destination market for the world, but this year we have gotten indications of what direction we are heading in. Let’s dive into it.
The CBAM was first proposed in July 2021 as part of the European Green Deal’s “Fit for 55” package—the EU’s legislative plan to reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels. Its rollout was slowed by complex questions: how to measure embedded emissions in imports, how to align with World Trade Organization (WTO) rules, and how to avoid punishing developing countries disproportionately. After a transitional phase beginning in October 2023, CBAM is set to fully take effect in January 2026, though discussions continue in Brussels on expanding its scope beyond the current six sectors (steel, aluminum, cement, fertilizers, hydrogen, and electricity) to potentially include more downstream products in the future. So we are some months away from the full rollout of the first-ever broad carbon tariff system to be instituted in the world, on approximately 15% of the global economy (The EU). And just a few months before then, we will be heading into COP30 in Brazil, where no doubt carbon markets will continue to be a central topic of conversation.
Brazil, one of the EU’s largest trading partners, representing around 9% of its imports, started making moves in response to the CBAM late last year. They are moving to operationalize their new mandatory carbon market: the Sistema Brasileiro de Comércio de Emissões (SBCE) with the launch of a provisional secretariat by the end of September 2025, marking the first phase of a five-step plan that will establish monitoring, reporting, verification systems, initial allocation of emission allowances (CBEs), and full market operation. The bill passed by Congress in late 2024 and was signed by President Lula in December, formalizing Brazil’s shift toward a regulated carbon market by the close of the decade.
The context for this move is unmistakably geopolitical. With the EU (the final destination for almost 20% of Brazil’s exports) poised to roll out its CBAM, the SBCE is both a defensive shield and a strategic opportunity. As the law’s architects put it, the SBCE is designed to allow Brazil "to retain carbon pricing revenues and reduce its CBAM exposure." The system embeds a phased rollout—beginning with regulatory design and monitoring infrastructure (Phase I and II), moving toward allocation of carbon allowances and full operation around 2030. Brazil’s Finance Minister, Fernando Haddad, frames the SBCE not as a burden but as an economic pivot: “The carbon market should be internationalized instead of thought of as only a national program,” he said, underscoring Brazil’s ambition to integrate into global carbon pricing networks. He advocates what he calls an “adjustment of the adjustment”—a constructive and collaborative alternative to the EU’s unilateral CBAM. Indeed, Brazil is pushing beyond defence. It is leveraging its COP30 presidency to forge a carbon-pricing coalition, involving the EU, China, and other partners—aiming to harmonize systems, avoid trade-distorting redundancies, and channel revenues into climate finance for developing nations. As a senior official puts it, Brazil is no longer prepared to be a rule-taker but is stepping into the role of rule-maker, shaping climate governance with allies and peers.
This response gains urgency amid a growing global carbon pricing momentum. The International Emissions Trading Association (IETA) notes that the CBAM has become a potent incentive: “I'm not sure the Europeans quite realize just how powerful the CBAM was as an incentive for other countries to adopt carbon pricing,” said MIT economist Catherine Wolfram. Brazil, China, India—all are advancing or aligning their systems amid the CBAM ripple effect.
When I first learned about the EU’s proposed CBAM back in 2021, I recall thinking how promising this would be and proceeded to do a small project back in grad school on what would this look like if adopted at the World Trade Organization (WTO) level—yes I have always been a dreamer, although I like to think of myself as a realistic one. As I was carrying out research for this project, I was met with all the criticisms of a system like the proposed CBAM and how it would eventually not fully achieve the desired end result. The most salient criticism in my mind was the concept of Carbon Leakage. The idea was that because there is no way that you can enforce an equivalent carbon price across the whole world, then the emissions you were trying to tax would simply shift further upwards in a product’s value chain. So that the cost of the tax would be eventually offset by cheaper and more polluting processes upstream.
Brazil’s reaction to the EU’s CBAM this year has me optimistic that this is not the reaction the global market will have and that indeed carbon pricing will spread and take hold across the world as just a normal order of business. Like property taxes or speeding fines, rendering pollution and climate change no longer just externalities.
If you have enjoyed our Europe coverage, you won’t want to miss our Europe Webinar next Wednesday!
This quarter’s Decarb Webinar will dive into one of the most ambitious experiments in collective climate action anywhere in the world: the European Union’s decarbonization strategy. With its Green Deal, binding climate governance, and pioneering tools like the Emissions Trading System and Carbon Border Adjustment Mechanism, the EU has created a unique framework that unites 27 countries under shared climate goals—while driving innovation, clean technology, and global standards. Yet the challenges of implementation, uneven progress, and political tensions reveal just how complex this model is. Join us as we unpack how this system really works, what’s driving results, where it’s falling short, and what lessons the EU offers for policymakers, business leaders, and investors across other regions looking to accelerate decarbonization.
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