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CBAM or a GCC Carbon Price? Who Should Keep the Revenue

CBAM lets exporters deduct an explicit carbon price paid at home — but the GCC has only voluntary markets. Should the Gulf introduce a domestic carbon price and keep the revenue?

By Sumit Agarwal
3 min read
Key takeaways
01

EU CBAM lets exporters deduct an explicit carbon price (a tax or ETS) already paid in the country of production — reducing the CBAM bill.

02

The GCC currently has voluntary carbon markets (Saudi GCOM, UAE's carbon register), which generally do not qualify as a deductible carbon price.

03

That means the carbon cost on Gulf exports — estimated at €70–95/tonne of CO₂ — currently flows to the EU rather than staying in the region.

04

A domestic carbon price would keep that revenue in the Gulf to fund decarbonisation, which is why CBAM is pushing Arab states to explore one.

Introduction

There is a quiet design feature inside the EU’s Carbon Border Adjustment Mechanism that should reshape how the Gulf thinks about carbon policy. CBAM lets an importer deduct any explicit carbon price already paid in the country where the goods were produced. In other words, every dollar of carbon cost the Gulf does not charge at home is a dollar its exporters hand to Brussels instead. With the CBAM definitive regime now live, that is no longer a theoretical question. This article makes the case that the GCC should consider keeping the revenue.

How the CBAM deduction works

Under CBAM, the certificate cost an EU importer pays is reduced by the carbon price already borne during production — provided that price is an explicit carbon price, such as a carbon tax or an emissions trading system (ETS). The logic is simple: CBAM exists to equalise carbon costs, so if a producer has already paid a comparable price at home, the EU should not charge it twice.

The estimated CBAM cost on Arab exports is significant — on the order of €70–95 per tonne of CO₂ as it ramps up. For carbon-intensive products like aluminium, steel, and cement, that is a real margin item.

The Gulf’s gap: voluntary, not explicit

Here is the catch. The GCC has moved on carbon markets — Saudi Arabia’s Greenhouse Gas Crediting and Offsetting Mechanism (GCOM) and the Regional Voluntary Carbon Market, the UAE’s national carbon register under Cabinet Resolution 67 of 2024 — but these are largely voluntary crediting and offsetting systems. Voluntary offset purchases generally do not count as an explicit carbon price that CBAM will deduct. So today, a Gulf exporter cannot point to a domestic carbon price to reduce its CBAM bill.

CBAM turns the absence of a domestic carbon price into an export to Brussels. The question is no longer whether the Gulf pays for carbon — it’s who collects.

Why CBAM is a forcing function

This is precisely why analysts note that CBAM is compelling Arab states to explore carbon pricing mechanisms and consider domestic ETSs as defensive measures. A well-designed domestic carbon price would:

  • Keep the revenue in-region, where it can fund the renewable power, efficiency, and low-carbon technology that lower emissions in the first place.
  • Reward early decarbonisers at home, sharpening the competitive edge the Gulf already holds in low-carbon aluminium.
  • Build the MRV muscle — measurement, reporting, verification — that exporters need for CBAM anyway.

It is not a simple decision. A carbon price raises costs for domestic industry and has to be calibrated against competitiveness and the region’s economic-diversification goals. But the strategic logic is shifting: with CBAM live, some carbon price is now being paid regardless — the only choice is the destination.

What exporters and policymakers should do

  1. Quantify your CBAM exposure with a CBAM-ready GHG inventory, so the size of the prize is concrete.
  2. Model the deduction — what a domestic carbon price would save against the CBAM bill at different price levels.
  3. Treat carbon pricing as strategy, not just compliance — it touches competitiveness, trade, and industrial policy at once.
  4. Invest the saved revenue in decarbonisation that compounds the Gulf’s low-carbon advantage over time.

How ESGweise helps

ESGweise helps GCC exporters and policymakers quantify CBAM exposure, model the carbon-price trade-off, and build the decarbonisation strategy and emissions data that turn a defensive cost into an industrial advantage. For the mechanics of CBAM itself, see our guide for GCC aluminium and steel exporters; for the UAE’s carbon register, see our note on Cabinet Resolution 67 of 2024.

Conclusion

CBAM has quietly reframed the carbon-pricing debate in the Gulf. The carbon cost on exports to Europe is now being paid either way — the only open question is whether the Gulf collects it at home and reinvests it, or lets it flow to Brussels. For a region with a genuine low-carbon advantage to defend, that is a question worth answering deliberately.