Putting climate coalitions into practice

Countries’ carbon-pricing systems are often compared by their headline rates: the stated cost for a ton of carbon dioxide a company emits. But that figure is rarely what firms actually pay – and it can make systems look much farther apart than they are.

Take steel. The EU’s carbon price was roughly $85 per ton last year, while China’s was about $10. On paper, the two systems appear to be $75 apart. Yet steelmakers do not pay those rates on every ton of carbon they emit. European producers receive free allowances – permits to emit – tied to production benchmarks. And in 2025, China allocated nearly all allowances for free. Once those protections are counted, the effective cost is roughly $35 per ton in the EU and close to zero in China. The gap is therefore closer to $35 than $75.

That matters because carbon pricing is increasingly influencing trade policy. Under its Carbon Border Adjustment Mechanism, or CBAM, to level the field with domestic industry the EU is now charging some imported goods for the emissions generated in making them; other governments are considering similar measures. To decide how foreign goods should be treated, governments need to know whether producers abroad already face a comparable carbon cost. Headline prices alone can give a distorted answer.

This report introduces an “effective carbon cost” that measures the average burden on firms in regulated industries. It then pairs that measure with an assessment of what can reasonably be expected from each country given its income and other local circumstances. The point is not to make compliance-carbon markets identical, but to posit a practical framework for how different systems might work together.

The need is growing. The CBAM entered its compliance phase in 2026, and 11 other countries, including the United Kingdom, Australia, Thailand, and Türkiye are considering measures of their own. Without coordination, these efforts could harden into a maze of competing standards, reporting systems, and border charges.

So, too, is the opportunity. At COP30 in Belém last year, 17 countries and the EU backed the Open Coalition on Compliance Carbon Markets – a forum for discussing experiences and sharing lessons on carbon pricing, carbon accounting, offsets, and verification systems – marking a major step toward coordinating carbon pricing and international trade.

Climate disasters and the war in Iran have strengthened the case for cleaner, more secure energy. But governments are also contending with high energy costs, geopolitical rivalries, artificial intelligence’s ballooning appetite for electricity, and tight budgets. Few are eager to adopt climate policies that appear to put domestic industry at a disadvantage.

A climate coalition centered on carbon pricing and trade would allow willing countries to move first while limiting the competitive penalty on their industries. Countries ready to act could coordinate carbon pricing in heavy industry and apply border adjustments to imports from nonmembers. Finance, technology support, capacity building, and preferential market access would give other countries a reason to join.

In addition to putting forward a practical framework, this report shows what cooperation might achieve in four heavily emitting sectors: steel, aluminum, cement, and fertilizer. It uses the Open Coalition’s current signatories as an illustrative case, presuming they go on to adopt the policies being modeled. The results suggest annual CO2 emissions cuts of 557-584 million metric tons, about 15 times those under current policies, and roughly $150 billion a year in carbon-pricing revenue for members, with a slight decline in industrial output.

Prepared by the GCPP Working Group on Climate Coalitions, the report argues that agreeing on a common yardstick to better connect systems now will be easier than untangling a patchwork of national rules later.

Suggested Citation:

Global Climate Policy Project Working Group on Climate Coalitions. Putting Climate Coalitions into Practice: A Common Framework for Balancing Competitiveness and Equity. Cambridge, MA: Global Climate Policy Project at Harvard and MIT, 2026.