Carbon Border Adjustment Mechanism (CBAM)

Source: Indian Express
GS II: International Relations: Important international institutions, groupings and agreements involving India; their significance for India’s interests, GS III: Environment & Ecology: Environmental pollution and degradation; climate change and climate finance.

Why in the News?

The BRICS Environment and Climate Ministers opposed the European Union’s Carbon Border Adjustment Mechanism (CBAM) at the 12th BRICS Environment Ministers’ Meeting, chaired by India in New Delhi.

News in Brief

• BRICS countries opposed the EU’s Carbon Border Adjustment Mechanism (CBAM), describing it as unilateral, punitive and discriminatory.
• They urged developed countries to scale up climate finance, particularly for adaptation, and fulfil commitments under the New Collective Quantified Goal (NCQG).
• The declaration reaffirmed CBDR-RC and called for cooperation that is voluntary and aligned with countries’ national circumstances.
• India handed over the 2027 BRICS Environment Ministers’ Meeting to China, which will host the 13th edition.

EU Carbon Border Adjustment Mechanism (CBAM)

• CBAM is the EU’s mechanism for putting a carbon price on certain carbon-intensive goods imported into the EU.
• It requires importers of carbon-intensive goods to buy certificates matching the carbon price under the EU Emissions Trading System (EU ETS), preventing carbon leakage.
• It aims to reduce carbon leakage, where production shifts from countries with stringent climate policies to countries with weaker regulations.
• Major sectors and products covered include,
  • Aluminium
  • Cement
  • Fertilizers
  • Hydrogen
  • Electricity
• CBAM was initially rolled out on October 1, 2023, with a reporting-only transitional phase.
• From January 1, 2026, the mechanism became fully operational, requiring importers to purchase and surrender CBAM certificates linked to the carbon emissions embedded in imported goods.

Key Arguments Against CBAM

• Unilateral and Punitive- Imposed by the EU without broad international consensus, raising concerns over unilateral climate-related trade measures.
• Trade Barrier- Functions as a hidden tax that can increase the cost of carbon-intensive exports such as steel, aluminium and cement, reducing their competitiveness in the European market.
• Violates Equity Principles– BRICS argues that CBAM undermines Common But Differentiated Responsibilities and Respective Capabilities  (CBDR-RC), as developing countries have different historical responsibilities, capabilities and developmental needs.
• Resource & Compliance Burden- Diverts financial and technical resources while imposing complex carbon-accounting and reporting requirements on developing-country exporters with limited capacity.

Threat to Climate Adaptation and Resilience

• Undermining Local Adaptation
  • Developing nations argue that CBAM drains vital financial resources away from domestic industries.
  • Instead of funding local climate adaptation, capacity building, and resilience infrastructure, developing economies are forced to divert funds to cover foreign carbon taxes or accelerate costly, capital-intensive industrial decarbonization.
• Economic Strain
  • By penalizing exports from the Global South, CBAM threatens economic growth, risks job losses, and reduces the sovereign fiscal capacity needed to handle localized climate disasters.

Climate Finance and the NCQG

• Climate finance remains the primary friction point in global climate negotiations, underscoring a deep North–South divide over who should finance climate mitigation and adaptation in developing countries.
• The NCQG Framework
  • Established as a successor to the unfulfilled $100 billion annual pledge, the New Collective Quantified Goal (NCQG) agreed upon at COP30 in Belém represents the new financial blueprint.
  • BRICS demands that wealthy nations fulfill their legal and historical obligations by providing predictable, public, and non-debt-creating finance.
• Tripling Adaptation Finance
  • Mitigation (reducing emissions) historically receives the largest share of global funding, leaving adaptation severely underfunded.
  • The BRICS declaration calls for tripling adaptation finance by 2035 to help vulnerable nations cope with active climate impacts like rising sea levels, prolonged droughts, and unpredictable monsoons.

The Core Pillar: CBDR-RC Principle

• The principle of Common but Differentiated Responsibilities and Respective Capabilities (CBDR-RC) serves as the legal backbone for developing countries under the UNFCCC and the Paris Agreement.
• Common Responsibility– Acknowledges that climate change is a transboundary, global crisis requiring collective action from every nation.
• Differentiated Responsibility- Highlights that developed nations are historically responsible for the vast majority of cumulative greenhouse gas emissions since the Industrial Revolution.
  • Therefore, they must bear the primary financial and logistical burden of cleaning it up.
• Respective Capabilities- Recognizes that countries possess varying financial, technological, and institutional capacities.
  • A developing nation cannot prioritize aggressive emission cuts over basic human development, poverty eradication, and energy security.

Voluntary and Nationally Calibrated Cooperation

• The declaration stressed that cooperation commitments should,
  • Remain voluntary.
  • Be calibrated according to national circumstances.
  • Respect differences in countries’ developmental and institutional capacities.
• This approach was applied across areas including forest-fire protocols and circular-economy standards.

India’s Perspective

• Export Competitiveness- CBAM could increase the cost of Indian steel, aluminium, cement and fertilizer exports, affecting their competitiveness in the European market.
• Policy Space- India invokes CBDR-RC to ensure its transition to green energy happens at locally sustainable and economically viable pace, rather than complying with mandatory emission timelines imposed by Western blocs.
• Technology & Finance- India seeks greater access to affordable climate finance and technology transfer to support decarbonization and adaptation, instead of shifting disproportionate costs onto developing economies.
• Climate Justice- India argues that climate measures should not become protectionist trade barriers, particularly when developed countries have historically contributed a larger share of cumulative emissions.

Conclusion

CBAM highlights the need to reconcile climate ambition with equity and developmental concerns.

A fair approach should combine stronger climate action with adequate climate finance, technology transfer and respect for CBDR-RC, ensuring that climate policies do not become barriers to sustainable development and international trade.

UPSC Prelims and Mains Practice Question

Consider the following statements regarding the EU’s Carbon Border Adjustment Mechanism (CBAM):

1. It seeks to address carbon leakage associated with carbon-intensive imports.
2. CBAM covers carbon-intensive sectors such as iron and steel, aluminium, cement and fertilizer, entering the European Union.
3. Developing countries have broadly supported CBAM as a mechanism for ensuring climate justice.

Which of the statements given above is/are correct?

(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3

Answer: (a) 1 and 2 only

Mains Practice Question

Q. The EU’s Carbon Border Adjustment Mechanism (CBAM) has brought climate policy and international trade into increasing conflict. Discuss India’s concerns regarding CBAM in the context of CBDR-RC and climate finance. (250 Words)

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