The World Trade Organization agreed on September 25, 2026 to establish an arbitration panel to review Russia's challenge against the European Union's Carbon Border Adjustment Mechanism. Russia argues the environmental levy is protectionist, while the European Union maintains it is WTO-compliant. Brussels agreed to participate in the panel to support multilateral trade rules but refuses to engage directly with Moscow due to the ongoing war in Ukraine. Meanwhile, five EU nations are pushing to ease internal carbon costs to protect European industrial competitiveness.
The WTO panel on Russia's complaint
- ▪The World Trade Organization Dispute Settlement Body agreed on September 25, 2026 to establish an expert panel to review Russia's complaint against the European Union's carbon border levy.
- ▪Russia requested the establishment of a World Trade Organization panel on July 10, 2026, which the European Union blocked before the second request was granted on September 25, 2026.
- ▪Russia filed its initial World Trade Organization complaint against the European Union's Carbon Border Adjustment Mechanism in May 2025, requesting consultations that the European Union rejected.
EU refusal to engage directly with Russia
- ▪The European Union declared that as long as Russia continues its war of aggression against Ukraine, Russia cannot expect to rely on World Trade Organization rules for improved export access.
- ▪The European Union stated it will participate in the World Trade Organization panel process reviewing Russia's challenge to its carbon border levy but will only engage with the panel and not directly with the Russian Federation
The Carbon border levy and international opposition
- ▪The European Union's Carbon Border Adjustment Mechanism requires importers of carbon-heavy goods like steel, aluminum, and fertilizer to declare embedded CO2 emissions and pay a levy exceeding European Union standards.
- ▪Trading partners including Brazil, South Africa, and India oppose the Carbon Border Adjustment Mechanism, arguing that the levy creates additional challenges for developing economies.
Emissions Trading System
- ▪The European Union Emissions Trading System has helped cut emissions from covered sectors by more than 50% since 2005 while generating more than €270 billion in revenues.
- ▪Russia argues that granting certain companies quotas under the European Union Emissions Trading System effectively amounts to an export subsidy and strengthens the competitive position of European producers.
Central European demands for carbon market flexibility
- ▪Austria, Czechia, Hungary, Slovakia, and Poland argue that factories should only make major decarbonization investments when basic conditions like affordable electricity and CO2 transport infrastructure are in place.
- ▪Austria, Czechia, Hungary, Slovakia, and Poland are pushing for changes to the European Union's carbon market to give European industry more time and flexibility to cut emissions.
Steel industry transition
- ▪Eurofer head Alex Eggert stated that the European steel industry would reach climate-neutrality while producing in Europe.
- ▪Eurofer head Alex Eggert stated that withdrawing carbon leakage protection too quickly risks undermining the multi-billion-euro investments in electrification, hydrogen, and CCS/CCU needed to make the industrial transition to climate-neutrality
Debatable claims
- ▪The EU's carbon border levy unfairly burdens developing economies
- ▪The EU's carbon border levy is a protectionist trade barrier
- ▪Free EU carbon allowances act as an unfair export subsidy
- ▪The EU is justified in withholding WTO trade benefits from Russia during its war
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