CARBON BORDER TAX
1. Context
A group of countries including India has opposed the carbon border taxes policy at the COP27 in Sharm El Sheikh, saying it could "result in market distortion".
2. What is a carbon border tax?
- A carbon border adjustment tax is a duty on imports based on the number of carbon emissions resulting from the production of the product in question. As a price on carbon, it discourages emissions. As a trade-related measure, it affects production and exports.
- The proposal is part of the European commission's European Green Deal that endeavors to make Europe the first climate-neutral continent by 2050.
- A carbon border tax is arguably an improvement from a national carbon tax.
- A national carbon tax is a fee that a government imposes on any company within the country that burns fossil fuels.
3. Carbon leakage
Some developed nations, in efforts to cut emissions, impose high costs on carbon-intensive businesses in their own countries. Businesses can potentially sidestep this simply by moving production to a country with less stringent rules, a practice called carbon leakage.
4. Issues with Carbon Border Tax
4.1 Non-Consensual with Rio Declaration: Article 12 of the Rio Declaration, which states that norms relevant to industrialized countries cannot be imposed on developing countries, contradicts the EU's idea that there should be a single worldwide standard for the environment.
4.2 Discriminatory and violates CBDR-RC: In a joint statement, the BASIC countries-Brasil, South Africa, India, and China- Opposed the CBT, calling it "discriminatory" and incompatible with the principles of inquiry and "Common but Differentiated Responsibilities and Respective Capabilities" (CBDR-RC).
4.3 Change in Climate-Change Regime: The greenhouse content of these imports would also need to be adjusted in the greenhouse gas inventories of the importing countries, which in essence means that GHG inventories would need to be calculated not based on production but on the point of consumption basis.
4.4 Protectionist Policy: The policy can also be regarded as a disguised form of protectionism. Protectionism refers to government policies that restrict international trade to help domestic industries. Such policies are usually implemented to improve economic activity within a domestic economy.
There is the risk that it becomes a protectionist device, unduly shielding local industries from foreign competition in so-called 'green protectionism.
5. Carbon Border Adjustment Mechanism
- The EU came up with the Carbon Border Adjustment Mechanism in 2021. The European Commission's website describes it thus, "Designed in compliance with World Trade Organisation (WTO) rules and other international obligations of the EU, the CBAM system will work as follows: EU importers will buy carbon certificates corresponding to the carbon price that would have been paid, had the goods been produced under the EU's carbon pricing rules.
- Conversely, once a non-EU producer can show that they have already paid a price for the carbon used in the production of the imported goods in a third country, the corresponding cost can be fully deducted for the EU importer."
6. Basic Countries
- Brazil, South Africa, India, and China are the four newly industrialized nations that make up BASIC.
- The grouping was established vis an agreement in November 2009.
- At the Copenhagen summit, the four nations decided to coordinate their actions regarding the negotiations of UN Climate change agreements.
7. Concerns of India along with Basic Countries
- Increasing the prices of Indian-made goods in the EU, this tax would make Indian goods from BASIC countries less attractive for buyers in the EU and parts of the world which adopt the Carbon Border Tax and could shrink its demand.
- Companies with a high carbon footprint would face substantial short-term issues as a result of the tax, and the world trading system would be further disrupted by increased protectionism, trade wars, and renegotiations.
- If Crude Oil prices stay between $30 and $40 per barrel, a fee of $30 per metric ton of CO2 emissions might cut the profit for international producers by around 20%.
8. India's Position
- India has maintained that developed countries cannot push the burden of doing more to tackle climate change while they evade responsibilities themselves. At COP27, India said all fossil fuels needed to be phased down and not just coal, which has been targeted by the developed countries and on which India is heavily reliant.
- In the spirit of the Paris Agreement, countries will do what is suitable as per their national circumstances.
- For India, just transition means the transition to a low-carbon development strategy over a time scale that ensures food and energy security, growth, and development, leaving no one behind in the process.
For Prelims & Mains
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For Prelims: Carbon Border Tax, BASIC Countries, CoP 27, Carbon Border Adjustment Mechanism, Copenhagen summit, European Green Deal.
For Mains: 1. What is the carbon border tax and Carbon Border Adjustment Mechanism? Explain the concerns of BASIC countries with the carbon border tax.
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Source: The Indian Express
