EU member states have agreed on the world’s first major carbon border tax, finalizing the details early Sunday in light of claims by the bloc’s main trading partners that the levy creates protectionist trade barriers.

Environmental regulators and ministers across the bloc signed on to introduce the Carbon Border Adjustment Mechanism (CBAM), a tool that will force foreign importers to cover the cost of their carbon emissions, after the deal was tentatively agreed on Tuesday.

The deal, a central part of the EU’s strategy to reduce its carbon emissions to net zero by 2050, is expected to be formally approved by leaders of the European Council and passed into EU law by the European Parliament before being adopted. comes into force in 2026.

Peter Liese, chief negotiator for the European Parliament, told Reuters on Sunday that the CBAM was “the biggest climate law ever in Europe, and some say in the world”. Liese said a large amount of CO₂ emissions would be reduced “at the lowest possible price”.

However, the deal has sparked controversy with the EU’s main trading partners, who say it will expose their industries to unfair competition.

The US and South Africa in particular have said the CBAM will unfairly penalize their manufacturers, who could now face a wave of cheap imports from companies unwilling to pay the EU levy and instead ship their goods to export elsewhere.

European lawmakers risked drawing criticism on Sunday after they agreed to discuss the need for subsidies to support EU-based exporters and submit a proposal for rebates “if necessary” by 2025.

Adina Georgescu, director of energy and climate at the metals industry trade organization Eurometaux, said policymakers had to “find a solution to keep our exports competitive”. Georgescu added: “Our companies cannot afford further loss of revenue and uncertainty on top of the current threat of an existential energy crisis.”

The EU has claimed that carbon-related rebates would be in line with World Trade Organization regulations. However, several analysts have said such support would be against the rules if foreign importers were required to buy certificates from the EU at the same time to cover their own carbon emissions.

Geneviève Pons, director general of the Paris-based think tank the Jaques Delors Institute, said offering grants of any kind would be one of CBAM’s “biggest risks” if they were introduced. “This probably wouldn’t be WTO compliant,” she said.

After about 30 hours of talks that dragged into the wee hours of Sunday, policymakers also agreed to raise the target for cutting emissions in industries covered by Europe’s emissions trading system, the carbon pricing mechanism, to 62 percent by 2030 .

Negotiators in Brussels also agreed to create a Social Climate Fund to help vulnerable households, small businesses and transport users deal with the effects of carbon prices. The fund would come into effect between 2026 and 2032 and could provide up to €65 billion in aid.

“This one [deal] will enable us to meet climate targets within key sectors of the economy, while ensuring that the most vulnerable citizens and micro-enterprises are effectively supported in the climate transition,” said Marian Jurečka, Minister of the Environment of the Czech Republic, who holds the rotating presidency of the European Union.

Ministers also agreed to phase out free allowances by 2034 to cover emissions in energy-intensive sectors, including cement, aluminium, iron and steel.

Not everyone thought the deal was ambitious enough. “The EU has missed a critical opportunity to significantly step up its climate ambition,” said Klaus Röhrig, head of climate at CAN Europe, a coalition of NGOs fighting climate change, arguing that the deal prioritized “the polluting industry over the people”.