International cooperation on carbon leakage will be key to advancing industrial decarbonisation globally. Work is ongoing across several international initiatives to drive these efforts forward, but better coordination and political will is needed to accelerate progress.
Leading trade and climate experts convened at Wilton Park in February to discuss potential pathways for advancing international cooperation on carbon leakage. The event, organised by E3G and the UK Foreign, Commonwealth & Development Office (FCDO), brought together international policymakers, academic experts and civil society representatives from developed and developing countries to advance shared understanding, generate ideas, and identify opportunities for progress.
There was consensus amongst this group that better coordination is needed to overcome the fragmentation of approaches to carbon leakage that are beginning to emerge. The challenge is to determine where and how this cooperation should be advanced: which existing international venues can be best leveraged, and which policy solutions are technically and politically feasible.
International cooperation on carbon leakage: Streamlining the patchwork of initiatives
Carbon leakage – where production is relocated from a jurisdiction with strong emissions regulation to areas with weaker regulation – undermines industrial decarbonisation efforts, as emissions are shifted rather than reduced.
To deliver ambitious emissions reductions and safeguard domestic industry, some jurisdictions have begun adopting Carbon Border Adjustment Mechanisms (CBAMs) to mitigate carbon leakage risk. As these measures are implemented unilaterally, there is a risk of fragmentation of approaches, such as differing monitoring, reporting and verification (MRV) systems and wider concerns around the lack of support for developing countries. Fragmentation is confounded by several international forums – such as the World Trade Organisation, OECD, UNFCCC, International Standards Organisation and the Climate Club – working on different aspects of international coordination, leading to duplication of efforts and a lack of a clear pathway to drive progress.
International cooperation on carbon leakage is essential to avoid a patchwork of approaches that create costly barriers to trade and investment, to maintain the integrity of CBAMs and other carbon leakage mitigation tools, to deliver fairer outcomes for developing countries, and to lay the foundation for wider climate cooperation.
Building political momentum on carbon leakage
The convening concluded with participants coalescing around a political strategy to drive cooperation forward.
First, mobilising political support for international cooperation on carbon leakage through existing venues rather than creating new, duplicative venues for cooperation.
The first step would involve identifying and empowering country champions to ensure buy in and elevate the issue on the agenda of multilateral venues. Jurisdictions which have already introduced carbon leakage mitigation measures – such as the EU and UK – could be suitable champions. However, leadership by developing countries and emerging economies will be essential for the legitimacy of long-term cooperation.
The second part of the strategy involves identifying and coordinating existing international initiatives. Countries must assess which venues are best suited to drive change – balancing speed and flexibility with broad participation, in-depth discussion, and bridging developing country needs and experiences. Once channels for inter-institutional cooperation are established, technical discussions can be advanced to identify shared solutions.
The most straightforward application of this political strategy would be the technical coordination of emissions Monitoring, Reporting and Verification (MRV) systems. As the International Institute for Sustainable Development (IISD) and others have set out, building interoperability – where countries’ MRV systems are distinct but designed to be compatible with one another – is essential to minimise trade barriers. MRV interoperability is a common interest, whether or not a country uses a domestic carbon price, as it will create certainty for international investors to accelerate industrial decarbonisation.
Future opportunities to advance international cooperation on carbon leakage
Several upcoming international moments offer opportunities to advance international cooperation on carbon leakage:
- New UNFCCC spaces such as the trade dialogues at Bonn SBs and the Integrated Forum on Climate Change and Trade (COP30 Action Agenda initiative) could offer venues for open discussion between a diverse group of countries and provide a political signal of the urgency to advance action.
- The UK-EU Summit in 2026 and the UK G20 Presidency in 2027 offer opportunities for European leadership on MRV interoperability by taking steps to coordinate existing CBAM regimes and establish best practice.
- The World Trade Organisation’s 14th Ministerial Conference (MC14) outcomes are expected to focus on WTO reform, but coordination on carbon leakage mitigation offers a live example of a trade and climate challenge that the institution will need to evolve to address.
