Publication - Carbon Markets, International Trade, and Climate Finance

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Title

Carbon Markets, International Trade, and Climate Finance

Publisher

Trade, Law and Development

Author

Rafael Leal-Arcas, Aosama Alghamdi

Published in

August 2025

Abstract

This study explores the intersection of carbon markets, climate finance, and trade mechanisms such as Carbon Border Adjustment Mechanisms (CBAMs) to advance global climate goals under equitable and transparent governance. Section I highlights the potential of carbon markets to support climate action under Article 6 of the Paris Agreement, emphasizing the need for robust rules, capacity-building, digital innovation, and alignment with Sustainable Development Goals (SDGs). These measures could accelerate technology diffusion, finance mobilization, and progress toward net-zero economies, fostering a just and sustainable future. Section II examines the integration of CBAMs with climate finance, suggesting that directing CBAM revenues to climate adaptation and mitigation in developing countries aligns with the principle of common but differentiated responsibilities. This approach can transform CBAMs from trade barriers to tools for equitable emissions reduction, strengthening global collaboration and economic fairness. However, implementation challenges such as administrative costs, trade impacts, and compliance for carbon-intensive economies require phased and inclusive strategies. Finally, Section III underscores the risks of CBAMs, questioning their environmental efficacy, political feasibility, and compatibility with trade agreements. The study concludes that equitable governance and innovative public-private partnerships are essential to harmonize trade, finance, and climate objectives, ensuring a resilient and inclusive low-carbon future.

URL

link to the document

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PIE Grant (Grid Portal)?
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• Climate Change

• Other