diff --git a/cli-plugins/manager/cobra.go b/cli-plugins/manager/cobra.go
index 4bfa06fa5c..ec45045b06 100644
--- a/cli-plugins/manager/cobra.go
+++ b/cli-plugins/manager/cobra.go
@@ -2,14 +2,15 @@ package manager
 
 import (
 	"fmt"
-	"net/url"
 	"os"
 	"strings"
 	"sync"
 
 	"github.com/docker/cli/cli/command"
 	"github.com/spf13/cobra"
+	"go.opentelemetry.io/otel"
 	"go.opentelemetry.io/otel/attribute"
+	"go.opentelemetry.io/otel/baggage"
 )
 
 const (
@@ -106,7 +107,7 @@ func AddPluginCommandStubs(dockerCli command.Cli, rootCmd *cobra.Command) (err e
 }
 
 const (
-	dockerCliAttributePrefix = attribute.Key("docker.cli")
+	dockerCliAttributePrefix = command.DockerCliAttributePrefix
 
 	cobraCommandPath = attribute.Key("cobra.command_path")
 )
@@ -125,7 +126,7 @@ func getPluginResourceAttributes(cmd *cobra.Command, plugin Plugin) attribute.Se
 	for iter := attrSet.Iter(); iter.Next(); {
 		attr := iter.Attribute()
 		kvs = append(kvs, attribute.KeyValue{
-			Key:   dockerCliAttributePrefix + "." + attr.Key,
+			Key:   dockerCliAttributePrefix + attr.Key,
 			Value: attr.Value,
 		})
 	}
@@ -134,14 +135,37 @@ func getPluginResourceAttributes(cmd *cobra.Command, plugin Plugin) attribute.Se
 
 func appendPluginResourceAttributesEnvvar(env []string, cmd *cobra.Command, plugin Plugin) []string {
 	if attrs := getPluginResourceAttributes(cmd, plugin); attrs.Len() > 0 {
-		// values in environment variables need to be in baggage format
-		// otel/baggage package can be used after update to v1.22, currently it encodes incorrectly
-		attrsSlice := make([]string, attrs.Len())
+		// Construct baggage members for each of the attributes.
+		// Ignore any failures as these aren't significant and
+		// represent an internal issue.
+		members := make([]baggage.Member, 0, attrs.Len())
 		for iter := attrs.Iter(); iter.Next(); {
-			i, v := iter.IndexedAttribute()
-			attrsSlice[i] = string(v.Key) + "=" + url.PathEscape(v.Value.AsString())
+			attr := iter.Attribute()
+			m, err := baggage.NewMemberRaw(string(attr.Key), attr.Value.AsString())
+			if err != nil {
+				otel.Handle(err)
+				continue
+			}
+			members = append(members, m)
+		}
+
+		// Combine plugin added resource attributes with ones found in the environment
+		// variable. Our own attributes should be namespaced so there shouldn't be a
+		// conflict. We do not parse the environment variable because we do not want
+		// to handle errors in user configuration.
+		attrsSlice := make([]string, 0, 2)
+		if v := strings.TrimSpace(os.Getenv(ResourceAttributesEnvvar)); v != "" {
+			attrsSlice = append(attrsSlice, v)
+		}
+		if b, err := baggage.New(members...); err != nil {
+			otel.Handle(err)
+		} else if b.Len() > 0 {
+			attrsSlice = append(attrsSlice, b.String())
+		}
+
+		if len(attrsSlice) > 0 {
+			env = append(env, ResourceAttributesEnvvar+"="+strings.Join(attrsSlice, ","))
 		}
-		env = append(env, ResourceAttributesEnvvar+"="+strings.Join(attrsSlice, ","))
 	}
 	return env
 }
diff --git a/cli-plugins/manager/cobra_test.go b/cli-plugins/manager/cobra_test.go
new file mode 100644
index 0000000000..207b536f1f
--- /dev/null
+++ b/cli-plugins/manager/cobra_test.go
@@ -0,0 +1,26 @@
+package manager
+
+import (
+	"testing"
+
+	"github.com/spf13/cobra"
+	"gotest.tools/v3/assert"
+)
+
+func TestPluginResourceAttributesEnvvar(t *testing.T) {
+	cmd := &cobra.Command{
+		Annotations: map[string]string{
+			cobra.CommandDisplayNameAnnotation: "docker",
+		},
+	}
+
+	// Ensure basic usage is fine.
+	env := appendPluginResourceAttributesEnvvar(nil, cmd, Plugin{Name: "compose"})
+	assert.DeepEqual(t, []string{"OTEL_RESOURCE_ATTRIBUTES=docker.cli.cobra.command_path=docker%20compose"}, env)
+
+	// Add a user-based environment variable to OTEL_RESOURCE_ATTRIBUTES.
+	t.Setenv("OTEL_RESOURCE_ATTRIBUTES", "a.b.c=foo")
+
+	env = appendPluginResourceAttributesEnvvar(nil, cmd, Plugin{Name: "compose"})
+	assert.DeepEqual(t, []string{"OTEL_RESOURCE_ATTRIBUTES=a.b.c=foo,docker.cli.cobra.command_path=docker%20compose"}, env)
+}
diff --git a/cli-plugins/manager/manager.go b/cli-plugins/manager/manager.go
index 9f795bc498..09b5b14e73 100644
--- a/cli-plugins/manager/manager.go
+++ b/cli-plugins/manager/manager.go
@@ -26,7 +26,7 @@ const (
 
 	// ResourceAttributesEnvvar is the name of the envvar that includes additional
 	// resource attributes for OTEL.
-	ResourceAttributesEnvvar = "OTEL_RESOURCE_ATTRIBUTES"
+	ResourceAttributesEnvvar = command.ResourceAttributesEnvvar
 )
 
 // errPluginNotFound is the error returned when a plugin could not be found.
diff --git a/cli/command/cli.go b/cli/command/cli.go
index 227720fa07..1452e1a240 100644
--- a/cli/command/cli.go
+++ b/cli/command/cli.go
@@ -11,6 +11,7 @@ import (
 	"path/filepath"
 	"runtime"
 	"strconv"
+	"strings"
 	"sync"
 	"time"
 
@@ -292,6 +293,7 @@ func (cli *DockerCli) Initialize(opts *cliflags.ClientOptions, ops ...CLIOption)
 	if cli.enableGlobalTracer {
 		cli.createGlobalTracerProvider(cli.baseCtx)
 	}
+	filterResourceAttributesEnvvar()
 
 	return nil
 }
@@ -591,3 +593,46 @@ func DefaultContextStoreConfig() store.Config {
 		defaultStoreEndpoints...,
 	)
 }
+
+const (
+	// ResourceAttributesEnvvar is the name of the envvar that includes additional
+	// resource attributes for OTEL.
+	ResourceAttributesEnvvar = "OTEL_RESOURCE_ATTRIBUTES"
+
+	// DockerCliAttributePrefix is the prefix for any docker cli OTEL attributes.
+	DockerCliAttributePrefix = "docker.cli."
+)
+
+func filterResourceAttributesEnvvar() {
+	if v := os.Getenv(ResourceAttributesEnvvar); v != "" {
+		if filtered := filterResourceAttributes(v); filtered != "" {
+			os.Setenv(ResourceAttributesEnvvar, filtered)
+		} else {
+			os.Unsetenv(ResourceAttributesEnvvar)
+		}
+	}
+}
+
+func filterResourceAttributes(s string) string {
+	if trimmed := strings.TrimSpace(s); trimmed == "" {
+		return trimmed
+	}
+
+	pairs := strings.Split(s, ",")
+	elems := make([]string, 0, len(pairs))
+	for _, p := range pairs {
+		k, _, found := strings.Cut(p, "=")
+		if !found {
+			// Do not interact with invalid otel resources.
+			elems = append(elems, p)
+			continue
+		}
+
+		// Skip attributes that have our docker.cli prefix.
+		if strings.HasPrefix(k, DockerCliAttributePrefix) {
+			continue
+		}
+		elems = append(elems, p)
+	}
+	return strings.Join(elems, ",")
+}