More now than ever, carbon pricing, carbon markets and international trade are converging. Emissions are no longer solely considered an environmental concern; emissions are now interweaved with financial markets, and they are now becoming a condition of market access.
In many aspects of trade, China and the US have dominated for decades – at the time of writing, the world reels from US imposed tariffs and relies heavily on Chinese supply chains. Yet the European Union has been quietly expanding its climate agenda internationally through trade. With its Carbon Border Adjustment Mechanism (CBAM) and climate clauses in trade agreements, the EU is embedding carbon pricing into global commerce — effectively exporting its climate rules to the rest of the world.
For businesses in Southeast Asia, this matters deeply. ASEAN exporters are increasingly exposed to climate-linked frictions, especially if their home countries currently lack formal carbon pricing policies. They are confronted economically, with trade opportunities or barriers, materially, financially, with shifting access to capital or rising insurance premiums, and with direct climate risks such as extreme weather events. The question is whether this creates a climate-induced trade typhoon for business: shifting global stances on trade, carbon pricing, and finance. Where does this leave businesses to position themselves?
The EU and CBAM: A New Border for Carbon Accountability
The European Union has taken the lead in hard-wiring climate ambition into trade policy, using its Carbon Border Adjustment Mechanism (CBAM) to assign a price to the embedded emissions of imported goods. The goal? To protect European industries, who are currently subject to the EU’s Emissions Trading Scheme (ETS), from being undercut by cheaper, high-emissions competitors.
Set to apply fully from 2026, CBAM will require importers to purchase carbon certificates equivalent to the EU ETS price, which has fluctuated between €60 – €100 per tonne of CO₂ in recent years. Initially, it covers carbon-intensive sectors such as steel, cement, aluminium, fertilisers, electricity, and hydrogen, but the EU has already signalled its intent to expand coverage over time.
CBAM has effectively exported Europe’s carbon price – rewarding countries with carbon pricing systems of their own, and effectively penalising those without. For ASEAN exporters, that means a new cost of doing business with one of their biggest markets, if they do not take up carbon pricing measures themselves. Many ASEAN economies currently lack mature carbon pricing systems, increasing the risk that exports must pay the full EU carbon price, unless they meet Brussels’ standards.
Some commentators consider that the EU’s CBAM – while a progressive climate policy – is fundamentally a protectionist measure. It is also yet another piece of the EU’s all-encompassing regulation of the green transition; regulations that may increasingly be seen as politically unviable for industry. Unsurprisingly then, many countries in Asia may not be too happy with the EU leveraging its trade weight to export its values on climate change.
The EU is also utilising Free Trade Agreements (FTAs) to export norms and embed expectations on matters such as deforestation-free supply chains, emissions reductions, and environmental governance. For example, The EU–Vietnam and EU–Singapore FTAs contain sustainability provisions, and it has been widely reported that sustainable development has become a significant sticking point in ongoing negotiations with Indonesia.
The US: A Superpower on the Sidelines
Since taking office, President Trump has imposed sweeping tariffs that touch every aspect of supply chains and the economy. His argument is that tariffs will encourage US consumers to buy more American-made goods and lead to huge levels of investment in American industry. This might be a pivotal shift in economic policy, but it continues the trend of the US dominating global trade – from the shaping of World Trade Organisation norms, to the proliferation of its own FTAs.
Moreover, the US market is driving huge aspects of global carbon markets. Leading standards setters such as VERRA, the American Carbon Registry, and the Climate Action Reserve have their headquarters based in the US.
Despite this, the US government has and continues to be, conspicuously absent from global carbon markets. Even under the Biden administration, Washington’s climate agenda is built on subsidies rather than pricing — most notably t, which offers hundreds of billions in tax credits for clean energy, EVs, and domestic manufacturing. It’s a powerful industrial policy, but one that’s inward-looking, and which many commenters have called protectionist.
China: A Parallel Carbon Order?
While the EU exports its carbon price quietly, and the U.S. largely abstains, China may be taking a different approach. It is set to operate the world’s largest emissions trading system (ETS), covering over 5 billion tonnes of CO₂ annually from its power sector; though limited in scope and based on intensity benchmarks rather than absolute caps. China’s could use its ETS, as the EU has, as a foundation for regional influence.
Unlike the EU, China is unlikely to build a CBAM in the European mold. Instead, it may embed carbon expectations into trade relationships more subtly, such as through the terms of Belt and Road Initiative (BRI) investments, bilateral agreements, or even preferential access to Chinese markets for low-emission producers. A handful of BRI countries have already begun exploring carbon market infrastructure with Chinese support, hinting at what a China-aligned carbon regime might look like.
For ASEAN exporters, this adds a new layer of complexity. Competing carbon rules may not only come from Brussels, but also from Beijing. This presents the risk of different methodologies, reporting demands, and political undertones. A firm trading across multiple markets could soon face a tangle of compliance obligations, with little room to influence the rules.
Caught in the Middle: Climate Costs Meet Protectionist Pressures
On one end, the EU is rewriting the rules of global trade through climate policy – pricing emissions at the border, demanding detailed carbon disclosures, and tying market access to environmental performance. On the other, the U.S. is escalating tariff wars and re-shoring supply chains, weaponising trade without integrating climate. And looming over both is China; the global exporting giant whose own carbon regime could take shape through investment terms and trade alliances.
This isn’t just policy noise, it is a growing operational minefield. Businesses that export across multiple markets are facing climate costs from Europe, political risks from the U.S., and strategic ambiguity from China.
ASEAN firms aren’t just adapting to climate risk anymore. They’re navigating a fractured trade system where compliance is fragmented, costs are rising, and the rules are being written far from home.
Seizing the new trade reality for ASEAN businesses
For ASEAN businesses, the ability to measure, manage, and mitigate emissions will soon determine not only regulatory exposure but market access and profit margins.
The logic is simple: if you operate in a high-carbon sector and export into a market like the EU, those emissions function as a liability – one you may need to pay for at the border. But if your operations are clean, and verifiably so, low emissions become a strategic asset: they lower trade costs, reduce compliance burdens, and may even attract preferential treatment in sustainable procurement or ESG-linked financing. This shift calls for a fundamental reappraisal of how emissions are viewed inside companies; not as distant environmental metrics, but as monetisable risks or opportunities.
What business leaders should prioritize now:
1. Understand emissions as both liabilities and assets
General sustainability reporting won’t cut it. What matters is the embedded carbon in specific goods – whether it is steel, cement, textiles, electronics – especially those bound for regulated markets like the EU. Granular, auditable data will soon be a non-negotiable trade requirement.
2. Engage with and advocate for local carbon markets and infrastructure
3. Stress-test your carbon exposure across markets
Where are you exporting? What will CBAM or any potential carbon pricing equivalents (from the US, China, or others) mean for your costs? Run scenarios to identify where carbon will become a price risk in the next 3–5 years.
4. Reframe internal carbon pricing as trade strategy
Many companies use internal carbon prices for capex or procurement decisions. But few link them to trade exposure. It’s time to align your internal carbon logic with your export ambitions.
5. Don’t bet everything on EU compliance
While the EU is leading, it may not remain the global player in carbon pricing. Businesses that build flexible carbon accounting systems, compatible across jurisdictions, will be far better positioned in a fragmented future. What is considered low-risk by one jurisdiction (e.g., based on intensity benchmarks or sector averages) may be penalised by another that uses absolute thresholds or different lifecycle accounting.
Conclusions
In this fragmented and fast-evolving landscape, businesses cannot afford to be reactive. Carbon is entering the cost base of international trade -it’s doing so without a universal playbook and at a time of growing protectionism
The challenge calls for shared intelligence, regional coordination, and practical solutions. That’s why we’re building an exclusive network for corporate sustainability leaders across ASEAN, a space to track policy shifts, exchange best practices, and collectively shape the region’s voice in global carbon markets.
We invite you to join us at inFUSE Together, we can make sure ASEAN isn’t just adapting to the carbon economy, but shaping it. To learn more or express interest, get in touch today.
Speak to expert
Yathida Ti
inFUSE Sustainability Solution Specialist
