From Climate Policy to Climate Partnerships

Europe faces a dual challenge: keeping its carbon pricing and industrial investment framework credible enough at home to hold capital in the transition and turning decarbonisation into an economic and geopolitical proposition compelling enough abroad to draw partners in alongside it. The first is a policy task; the second, which splits into building a credible partnership offer and making decarbonisation bankable, is an investment and partnership task that policy alone cannot complete. Europe hosts around a quarter of the global pipeline of clean industrial projects, but more than 90% of these still await a final investment decision, making policy credibility the decisive variable. 

In a more fragmented geopolitical environment, neither weakening European carbon pricing nor relying primarily on unilateral border measures such as the Carbon Border Adjustment Mechanism (CBAM) will mobilise the capital or the coalitions Europe needs abroad. The EU therefore needs to better connect its climate, industrial and trade policies. Credible carbon pricing and carbon leakage protection at home, complemented internationally by partnerships that mobilise investment, reduce financing costs and create mutual economic benefits from decarbonisation.

This challenge is acute at a pivotal moment. The EU Emissions Trading System (ETS) is entering a decisive reform phase, while CBAM has entered its definitive phase, against a backdrop of growing concerns over European competitiveness, geopolitical fragmentation and international trade tensions. Within Europe, the CBAM is under pressure over administrative complexity, its knock-on effects along value chains and the export gap.

Internationally, the EU’s approach is widely perceived as unilateral, even protectionist and Eurocentric. An approach that imposes the cost of decarbonisation on trading partners without providing sufficient support to enable their adaptation and transition: ‘a stick without a carrot’.1

The answer to this is neither to weaken the ETS nor to continuously expand the role of EU border measures. Europe should preserve a credible carbon price and effective carbon leakage protection while developing a complementary partnership architecture around investment, finance, technology cooperation and international carbon pricing.

This policy brief outlines such an approach. It argues for complementing a better-embedded carbon leakage protection by a complementary partnership agenda around investment, finance, technology cooperation and international carbon pricing, which is currently missing. This requires action on three fronts:
 

• Protect: keep carbon leakage instruments targeted and predictable, close the export gap and avoid unnecessary complexity.
• Partner: turn Europe’s climate policy into a more credible international added value proposition through revenue recycling, MRV cooperation and differentiated approaches for vulnerable partners
• Invest: make decarbonisation economically viable through guarantees, offtake arrangements, co-investment and, where appropriate, robust international carbon-market cooperation.

1This policy brief was developed on the basis of a Policy Accelerator workshop held in April 2026 by EPICO and Konrad-Adenauer-Stiftung Multinational Development Policy Dialogue. The workshop aimed to bring in a third-country perspective to a debate usually conducted from within Europe. The CBAM was examined not in isolation, but through the eyes of the partners whose cooperation determines whether it succeeds.