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EU member states agreed on the world’s first major carbon border tax, finalizing details early Sunday, amid claims from the bloc’s main trading partners that the levy creates protectionist trade barriers.

Environment regulators and the bloc’s ministers signed off on the introduction of the Carbon Boundary Adjustment Mechanism (CBAM), a tool that would force foreign importers to cover the cost of their carbon emissions, after a provisional deal was agreed on Tuesday.

The deal, which is a central part of the EU’s strategy to reduce carbon emissions to net zero by 2050, is expected to be formally agreed by leaders in the European Council and passed into EU law by the European Parliament before coming into force in 2026. :

Peter Lees, the European Parliament’s chief negotiator, told Reuters on Sunday that the CBAM was “the biggest climate law ever in Europe, and some say in the world.” Lièze said that large amounts of CO₂ emissions would be cut “at the lowest possible cost”.

However, the deal has sparked controversy with the EU’s main trading partners, who say it will expose their industries to unfair competition.

The US and South Africa in particular have said CBAM would unfairly penalize their manufacturers, who could now face a flood of cheap imports from companies unwilling to pay the EU levy and instead export their goods elsewhere.

European lawmakers risked criticism on Sunday after they agreed to discuss the need for subsidies to support EU-based exporters and to come up with a proposal for rebates “if necessary” until 2025.

Adina Georgescu, director of energy and climate at metals industry trade body Eurometaux, said policymakers must “find a solution to keep our exports competitive”. Georgescu added: “Our companies cannot afford further revenue loss and uncertainty on top of the threat of today’s existential energy crisis.”

The EU insists the carbon rebates will comply with World Trade Organization regulations. However, several analysts said such support would run afoul of the rules if foreign importers had to obtain certificates from the EU to cover their carbon emissions at the same time.

Genevieve Pons, director general of the Paris-based think tank Jacques Delors Institute, said offering any kind of subsidies would be among CBAM’s “main risks” if implemented. “This would be really unlikely to be WTO compatible,” he said.

After nearly 30 hours of talks that stretched into the early hours of Sunday, policymakers also agreed to raise the emissions reduction target for industries covered by the European Emissions Trading System (a carbon pricing mechanism) to 62 percent by 2030.

Negotiators in Brussels also agreed to create a Social Climate Fund to help vulnerable households, small businesses and transport users cope with the effects of carbon pricing. The fund will operate from 2026 to 2032 and can offer up to €65 billion in aid.

“This [deal] will allow us to achieve climate goals in key sectors of the economy, while ensuring that the most vulnerable citizens and micro-enterprises are effectively supported in the climate transition,” said Czech Environment Minister Marian Jurechka, who chairs the Czech Republic’s Ministry of Environment. AM.

Ministers also agreed to phase out free allowances to cover emissions in energy-intensive industries (including cement, aluminium, iron and steel) by 2034.

Not everyone thought the deal was ambitious enough. “The EU has missed an important opportunity to significantly strengthen its climate ambitions,” said Klaus Roehrig, head of climate at CAN Europe, a coalition of climate change NGOs, arguing that the deal prioritizes “polluting industries, than people.”

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