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Trading Green: How the EU Can Align Climate and Trade in a Fractured World

The tension between climate ambition and trade openness poses one of the most consequential policy challenges facing the European Union. As global trade has expanded, so too have the embedded emissions carried across borders. For the EU, imported emissions constituted nearly 40 per cent of its total carbon footprint in 2021. Against a backdrop of rising protectionism, US-China rivalry, Chinese industrial overcapacity, and soaring European energy costs, the EU faces mounting trade-offs between competitiveness, decarbonisation and economic security. Tools such as the Carbon Border Adjustment Mechanism represent meaningful steps, but have generated friction with trading partners and introduced regulatory uncertainty. A credible EU strategy requires domestic regulatory stability – particularly around the Emissions Trading System – alongside an internationally coherent framework integrating trade, climate and development objectives, including shared consumption-based emissions accounting and targeted green finance for partner countries.

Paper produced in the framework of the project “Rethinking of an EU just sustainable trade policy and the Italian case study”.