GCC and Pakistan’s Path to Sustainable Trade with Europe

The Carbon Border Adjustment Mechanism (CBAM) is transforming global trade dynamics, especially for regions like the GCC and Pakistan, where exports to the European Union (EU) play a significant role. To fully grasp the implications of CBAM, it’s crucial to understand the broader context within the EU’s Emission Trading System (ETS), explore how different industries are affected, and outline the steps businesses need to take to achieve compliance. This policy doesn’t just affect Europe; it impacts any business trading with the EU, requiring countries that produce high-emission products—like steel, cement, textiles, and energy-intensive goods—to navigate a new set of carbon-related requirements to maintain their market access.

The ETS, launched in 2005, has been a foundation for the EU’s efforts to control emissions within its borders, using a cap-and-trade system to limit greenhouse gas emissions. As ETS costs rise over time, businesses within the EU have faced growing incentives to cut emissions. Yet, while the ETS has been effective in driving change domestically, the issue of “carbon leakage”—where companies or their suppliers relocate production to countries with more lenient environmental policies—has become apparent. CBAM was introduced as a solution, aiming to “level the playing field” by ensuring imported goods face similar emissions-related costs, thereby protecting European industries and incentivizing greener practices globally. CBAM covers high-emission sectors, including cement, steel, aluminum, fertilizers, electricity, and hydrogen, and is set to expand to include additional industries.

In the GCC, where sectors like oil refining, cement production, aluminum manufacturing, construction, telecommunications, and advanced manufacturing are key economic drivers, CBAM compliance introduces both challenges and opportunities. For instance, the cement industry, particularly in Saudi Arabia, which leads the region in cement production, faces a unique set of hurdles. Cement is notoriously carbon-intensive due to the high energy consumption required for production. With CBAM, cement exporters now have to factor in the costs associated with these emissions or risk facing tariffs that could reduce their competitiveness in the EU. This requirement is also propelling companies toward cleaner energy sources, waste reduction, and innovative technologies like carbon capture, which, while initially costly, can lead to long-term sustainability and new market advantages.

Oil refining, another significant GCC industry, faces similar challenges under CBAM. With the EU importing refined oil products, GCC refineries must track and disclose emissions tied to production. Compliance may require a shift toward renewable energy in refining processes or investing in cleaner technologies. For the GCC’s advanced manufacturing sector, which includes telecommunications and electronics manufacturing, the focus will be on lowering emissions across complex supply chains, where carbon tracking and transparent reporting may pose challenges. The UAE and Saudi Arabia, in particular, have made advanced manufacturing central to their economic diversification efforts, and meeting CBAM standards will help maintain competitiveness in European markets that are now prioritizing emissions compliance.

The construction sector is yet another industry that will be reshaped by CBAM compliance. The rapid urban development in GCC cities like Dubai and Riyadh has driven high demand for carbon-intensive materials like cement, steel, and aluminum, used extensively in major infrastructure projects. These materials, now regulated under CBAM, add additional layers of cost and compliance. As GCC companies aim to expand their export reach into Europe, CBAM compliance could necessitate a switch to “green building” practices and materials, aligning with sustainable initiatives within the region, such as Saudi Arabia’s Vision 2030 and the UAE’s Net Zero 2050 plan. Both governments have adopted green building standards and other frameworks to promote environmentally conscious development, a shift that could not only help local construction companies maintain EU market access but also elevate their appeal to international investors who prioritize sustainability.

Moving beyond the GCC, CBAM also brings notable implications for Pakistan, where major export sectors include textiles, sports goods, and surgical instruments. The textile industry, a cornerstone of Pakistan’s economy, is highly energy-intensive and often reliant on traditional energy sources. With Europe as a primary destination for Pakistani textiles, non-compliance with CBAM regulations could result in higher costs or even market exclusion. For textile exporters, CBAM compliance may require a rethinking of supply chains and energy sources, potentially pushing companies to invest in cleaner manufacturing techniques or renewable energy solutions. This challenge also presents an opportunity to modernize the sector, reduce costs, and appeal to a growing base of environmentally conscious consumers and partners.

Pakistan’s sports goods and surgical instruments industries face parallel challenges. For sports goods manufacturers concentrated in Sialkot, the transition to lower-emission practices could mean increased production costs, particularly for smaller businesses that may lack the capital for large-scale adjustments. However, compliance with CBAM could make these products more attractive in European markets and boost Pakistan’s reputation for quality and sustainability. Similarly, for surgical instruments, emissions-related compliance may necessitate updated manufacturing techniques and more detailed emissions tracking—initially increasing operational costs but ultimately opening doors to a broader market that values sustainability and transparency.

The pathway to CBAM compliance begins with a foundational understanding of its requirements. Companies intending to export to Europe must first register as CBAM declarants within an EU member state, a process that involves submitting details about the business, its products, and their associated emissions. For companies less familiar with emissions tracking, this can feel complex, but support is available through third-party verifiers and regulatory bodies. Once registered, businesses must establish accurate records of the carbon emissions linked to each exported product. Known as “embedded emissions,” these figures capture the total greenhouse gases emitted throughout the production process. This is especially challenging for companies without established emissions-tracking practices, making third-party verifiers crucial. In the GCC, QTC- Quality Techno Certification has become an essential partner in this compliance process, providing specialized services to help regional exporters meet CBAM and ETS standards seamlessly.

Understanding carbon pricing under CBAM is also vital. The cost of carbon embedded in imported goods is directly linked to ETS carbon prices. This means that as ETS prices rise in Europe, so too will CBAM costs. Companies must purchase CBAM certificates, which function like ETS allowances but are specific to imports. The number of certificates required will vary based on ETS carbon prices, so keeping up with ETS trends is essential for exporters. Periodic submissions of CBAM certificates ensure continuous compliance, with accurate emissions reporting critical for avoiding penalties or disruptions in EU market access.

Finally, companies must submit an annual declaration to EU authorities, listing imported quantities, emissions, and certificates surrendered. Any gaps in reporting can lead to penalties and limit market access. Given these demands, many exporters work with representatives within the EU or local compliance teams to manage ongoing reporting. This extensive reporting is a cornerstone of CBAM, ensuring that European regulators have transparency into how imported goods align with their emissions standards.

The regulatory impact of CBAM has accelerated sustainability efforts in the GCC. Saudi Arabia’s Vision 2030 and the UAE’s Net Zero 2050 initiative include ambitious targets for carbon reduction, renewable energy adoption, and environmental responsibility across sectors. Saudi Arabia’s recent agreement with QTC- Quality Techno Certification , whereby the Ministry of Health Saudi Arabia is taking concrete steps to align with international carbon reduction standards, reflects a significant step forward in sustainable practices within the healthcare sector. This partnership not only elevates environmental compliance within Saudi Arabia but also positions QTC- Quality Techno Certification as a leader in CBAM compliance support for GCC industries. QTC- Quality Techno Certification ’s experience in verification and validation for emissions reporting has made it a trusted partner in helping GCC-based companies maintain EU market access without risking penalties for non-compliance.

In the UAE, policies like the UAE Energy Strategy 2050 and frameworks set by the ????? ?????? ??????? ??????? Ministry of Climate Change and Environment are pushing industries toward sustainable practices. The UAE is positioning itself as a regional leader in carbon management, with efforts to reduce emissions by 70% by 2050. These initiatives promote energy efficiency, waste reduction, and alignment with international standards like CBAM, enabling UAE businesses to seamlessly comply with global emissions expectations and maintain their competitive advantage.

For GCC-based businesses and exporters from Pakistan, CBAM compliance not only mitigates risk but can be leveraged as a competitive differentiator. International partners and consumers increasingly value sustainability, and aligning with CBAM requirements can enhance reputation, access to capital, and partnership opportunities. QTC- Quality Techno Certification , as the first GCC-origin Verification and Validation Body (VVB) for CBAM, plays an instrumental role in assisting businesses across these regions in achieving compliance. Their specialized services—spanning emissions assessment, registration, verification, and ongoing reporting—make QTC- Quality Techno Certification a trusted partner for exporters navigating CBAM and ETS regulations.

CBAM represents more than just an additional regulatory hurdle; it’s a gateway to sustainable trade. As industries across the GCC and Pakistan embrace these requirements, they stand to gain not only in market share but also in fostering a reputation for environmental leadership and responsible business practices on a global scale.

Written by Kashif Ali Raza

Ministry of Industry & Advanced Technology | ????? ??????? ???????????? ????????

Ministry of Health and Prevention - UAE

Emaar Properties PJSC Alhabtoorrealestate.eu ADNOC Group ENOC Emarat - Emirates Petroleum Company P.J.S.C Nakheel Developments Pakistan Import & Export Trading Company Austrade Middle East, Africa and Pakistan | Australian Trade and Investment Commission Sialkot Chamber of Commerce and Industry Federation of Pakistan Chambers of Commerce & Industry Dr. Sultan Al Jaber APTMA - ALL PAKISTAN TEXTILE MILLS ASSOCIATION Pakistan Textile Council