The EU Carbon Border Adjustment Mechanism (CBAM) and Its Implications for Green Tax Policy in Developing and Transitional Economies

The EU Carbon Border Adjustment Mechanism (CBAM), which entered its definitive compliance phase on 1 January 2026, marks the first time a carbon price applied within a major jurisdiction has been externalized beyond its borders. This article examines the CBAM's design, implementation, and global ramifications, with a focus on its implications for green tax policy in developing and transitional economies. Drawing on institutional reports, trade impact analyses, and comparative case studies from Turkey, India, Brazil, Mozambique, Ukraine, and the South Caucasus, the article evaluates the mechanism's effects on export competitiveness, fiscal sovereignty, and domestic carbon pricing trajectories. The analysis reveals that while the CBAM poses significant distributional challenges for economies dependent on carbon-intensive exports, it is simultaneously catalyzing an unprecedented wave of domestic carbon pricing adoption as countries seek to retain carbon revenues rather than cede them to the EU. Critically, the CBAM also creates strong incentives for developing economies to adopt green tax incentives for renewable energy investment, as lower-carbon production reduces future CBAM exposure. The article concludes that the CBAM's contribution to global climate governance will depend on whether it is complemented by adequate financial support, technology transfer, and capacity-building for affected developing nations.