CARBON BORDER ADJUSTMENT MECHANISM
Recently, the Carbon border adjustment mechanism, co-legislators at the European Commission signed the Carbon Border Adjustment Mechanism (CBAM).
It has been described as a "landmark tool" to put a "fair price on the carbon emitted during the production of carbon-intensive goods that are entering the EU and to encourage cleaner industrial production in non-EU countries".
2. About CBAM
- Its primary objective is to avert carbon leakage. It refers to a phenomenon where an EU manufacturer moves carbon-intensive production to countries outside the region with less stringent climate policies.
- In other words, replace EU-manufactured products with more carbon-intensive imports.
- From 2026, once the CBAM is fully implemented, importers in the EU would have to buy carbon certificates corresponding to the payable carbon price of the import had the product been produced in the continent, under its carbon pricing rules.
- Conversely, if a non-EU producer is paying a price (or tax) for carbon used to produce the imported goods, back home or in some other country, the corresponding cost would be deducted for the EU importer.
- The Commission, in coordination with relevant authorities of the member states, would be responsible for reviewing and verifying declarations as well as managing the central platform for the sale of CBAM certificates.
- Importers would have to annually declare by Mayend the quality and embedded emissions in the goods imported into the region in the preceding year.
- The idea here is to avert the possibility of carbon leakage alongside encouraging producers in non-EU countries to green their manufacturing processes.
- Moreover, it will ensure a level playing field between imports and EU products.
- This would also form part of the continent's broader European Green Deal which endeavours to achieve a 55 per cent reduction in carbon emissions compared to 1990 levels by 2030 and become a climate-neutral continent by 2050.
3. Reasons for the Country's worry
- CBAM would initially apply to imports of certain goods and selected precursors, whose production is carbon intensive and are at risk of "leakage" such as the cement, iron and steel, aluminium, fertilizers, electricity and hydrogen sectors.
- In 2021, the United Nations Conference on Trade and Development (UNCTAD) concluded that Russia, China and Turkey were most exposed to the mechanism.
- Considering the level of exports to the union in these sectors, it stated India, Brazil and South Africa would be most affected among the developing countries.
- Mozambique would be the most exposed least developing country.
- Important to note, countries in the EU combined represent about 14 per cent of India's export mix for all products, steel and aluminium included.
- India's exports in the five segments represented less than 2 per cent of the total exports to the EU between 2019 and 2021.
However, the impact of the regulation may appear limiting, its long-term effects can be severe for multiple factors.
- The EU is India's third largest trade partner and given the latter's projected growth trajectories, the size of exports (including in the CBAM sectors) will invariably rise.
- CBAM's scope would expand beyond its current ambit to include other sectors as well. Given India's products have a higher carbon intensity than its European counterparts, the carbon tariffs imposed will be proportionally higher making Indian exports substantially uncompetitive.
- International climate policies (including CBAM) will compel other countries to impose similar regulations eventually translating to "a significant impact" on India's trading relationships and balance of payments.
For Prelims: Carbon Leakage, EU, India, Climate Change, CBAM, European Green Deal,
1. What is Carbon Leakage? Discuss how will the new policy affect trade between India and European Union. (250 Words)
Previous Year Questions
1. Which of the following adds/add carbon dioxide to the carbon cycle on the planet Earth? (UPSC 2014)
1. Volcanic action
4. The decay of organic matter
Select the correct answer using the code given below
A. 1 and 3 only B. 2 only C. 1, 2 and 4 only D. 1, 2, 3 and 4
2. Which of the following statements best describes the term 'Social Cost of Carbon'? It is a measure, in monetary value, of the (UPSC 2020)
A. long-term damage done by a tonne of CO2 emission in a given year.
B. requirement of fossil fuels for a country to provide goods and services to its citizens, based on the burning of those fuels.
C. efforts put in by a climate refugee to adapt to live in a new place.
D. contribution of an individual person to the carbon footprint on the planet Earth.
Source: The Hindu