Latin America positioned to strengthen EU trade through emerging carbon pricing programs
Latin America and the Caribbean region currently faces minimal exposure to the EU's Carbon Border Adjustment Mechanism compared to other global regions. The emergence of new regional carbon pricing mechanisms could further reduce compliance costs for local producers, potentially expanding their competitive edge in European markets. This development presents an opportunity for LAC exporters to leverage climate policy advantages in transatlantic trade.
The EU's Carbon Border Adjustment Mechanism, which became fully operational in January 2026, imposes financial costs on importers of carbon-intensive goods including steel, aluminum, cement, and fertilizers. However, countries that have already implemented their own carbon pricing systems can offset these costs by deducting domestically-paid carbon prices from CBAM liabilities. Brazil currently supplies roughly 2% of all EU imports covered by CBAM, making it the only Latin American nation ranking in the top 20 global suppliers of these products. Several LAC governments—notably Brazil, Colombia, and the Dominican Republic—are developing emissions trading systems that could substantially reduce producer compliance costs.
If emerging carbon markets in Latin America effectively reduce export costs, regional producers could gain competitive advantages in European markets, potentially increasing trade flows and investment in climate-aligned industries. Conversely, countries without pricing mechanisms may face higher barriers. The outcome could shape investment patterns in industrial decarbonization across the region, affecting employment and economic development in carbon-intensive sectors. Success may also influence broader negotiations around climate policy coordination between developed and developing economies.