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Carbon Border Adjustment Mechanism

Carbon Border Adjustment Mechanism (CBAM)

Source: The Hindu
GS III: Environment


Overview

Image by Gerd Altmann from Pixabay
  1. News in Brief
  2. What is CBAM?

Why in the News?

Commerce and Industry Minister Piyush Goyal assured that the government will take all necessary steps to protect Indian industry from any adverse impact of the European Union’s Carbon Border Adjustment Mechanism (CBAM).

News in Brief


  • The Minister’s remarks assume significance as the CBAM framework involves onerous reporting requirements for cement, iron and steel, aluminium, fertilisers, and electricity imports in the region, to start with, with additional import levies to be imposed on such carbon-intensive products from 2026.
  • Experts reckon Indian steel exports to Europe, for instance, could take the biggest hit from the CBAM due to the more carbon-intensive nature of production processes vis-à-vis rivals like China and South Korea.

What is the Carbon Border Adjustment Mechanism (CBAM)?


  • The Carbon Border Adjustment Mechanism(CBAM) is a carbon tariff on carbon-intensive products.
  • This mechanism was invented by the European Union.
  • CBAM is part of the Fit for 55 in 2030 package.
    • EU’s plan to reduce greenhouse gas emissions.
    • Aims at least 55% by 2030 compared to 1990 levels.
  • CBAM would address the carbon emission problem that is emitted during the production of goods.
  • This mechanism imposes duties and tariffs on such carbon-intensive products.
  • CBAM framework involves reporting iron and steel, aluminum, fertilizers, and electricity imports in the region, regarding carbon emission while producing it. To start with, additional import levies are to be imposed on such carbon-intensive products from 2026.
Key Facts on CABM
  • Carbon Pricing
    • CBAM involves imposing a carbon price or a carbon tax on certain imported goods based on the carbon emissions associated with their production.
    • This carbon price is intended to reflect the emissions that occurred during the manufacturing process in the exporting country.
  • Leveling the Playing Field
    • By subjecting imported goods to a carbon price, CBAM aims to create a level playing field for domestic industries that are already subject to carbon pricing mechanisms and emissions reduction targets.
    • This prevents unfair competition where foreign producers can offer cheaper goods due to lower environmental standards.
  • Emission Reduction Incentive
    • CBAM can serve as an incentive for foreign industries to reduce their carbon emissions.
    • To avoid paying higher import costs due to the carbon tax, foreign producers may invest in cleaner technologies and practices.
  • Revenue Generation
    • The revenue generated from the carbon taxes on imported goods can be used by the importing country for various purposes.
    • This including funding renewable energy projects, supporting domestic industries in transitioning to cleaner technologies or providing financial assistance to low-income households.
  • Environmental Goals
    • CBAM aligns with a country’s environmental and climate goals by encouraging emissions reductions not only domestically but also in the countries from which goods are imported.

How Carbon Border Adjustment Mechanism impact India?


  • Trade Impact
    • If the CBAM is designed to impose carbon tariffs on imports based on their carbon emissions, it could affect Indian exports to countries implementing CBAM.
    • Industries with high carbon emissions, such as steel and cement, may face higher costs to access foreign markets.
  • Competitiveness
    • Indian industries that are less carbon-efficient or rely heavily on fossil fuels for production.
    • It may find it more challenging to compete in international markets, especially if CBAM raises the cost of their exports.
  • Policy Response
    • India may respond to CBAM by implementing its own carbon pricing mechanisms or by accelerating its efforts to transition to cleaner and more sustainable industrial practices.
    • This could include incentives for renewable energy, energy efficiency measures, and emissions reduction targets.

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