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Carbon Border Adjustment Mechanism (CBAM)- Eupropean Union (EU) - short notes

 What is CBAM and How will it have impact on India ?

   CBAM is a policy tool introduced by the EU to reduce carbon emissions by imposing a carbon tax on imported products, ensuring that they are subject to the same carbon costs as products produced within the EU. It is part of the EU's "Fit for 55 in 2030 package" to reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels. This is an attempt to prevent 'carbon leakage'. According to the EU, Carbon leakage occurs when companies based in the EU move carbon-intensive production abroad to countries where less stringent climate policies are in place than in the EU, or when EU products get replaced by more carbon-intensive imports. CBAM particularly performs two functions - 

  1. It puts a fair price on the carbon emitted during the production of carbon intensive goods that are entering the EU.
  2. It encourages cleaner industrial production in non-EU countries.

    Foreign products entering the EU shall be checked if they are carbon intensive, and if yes, these products are liable to pay price equivalent to the carbon price. In other words, EU importers will buy CBAM certificate the price of which will be equal to the carbon price.

    Objectives of CBAM include phasing out allocation of free allowances by 2026 under the EU Emissions Trading System (ETS) to support the decarbonisation of EU industry. 

CBAM will be initially applied to  the following sectors - 

  1. cement
  2. iron and steel
  3. aluminium
  4. fertilizers
  5. electricity
These sectors have a high risk of carbon leakage and high carbon emissions. But, CBAM is likely to next cover organic chemicals, plastics, polymers and hydrogen. Gradually all the carbon intensive sectors will be sought for coverage.

How will CBAM affect India ?

  1. As per a data of 2019-21, the EU accounted, on an average 14.64% of India's total exports but India's share of total CBAM sector exports was only 6.51% out of which above mentioned five sector constituted merely 1.30%. therefore, there will be minimal impact on India in terms of these five sector EU exports.
  2. In terms of total EU exports, India will have over 50% of exports coming under CBAM proposal. Therefore, there will have large impact.
  3. Iron and steal sector, followed by aluminium sector, will mostly be affected.
  4. Fertilizer exports will negligibly be affected.  
How did India respond? 
  1. India termed it as 'the most regressive proposal'
What measures can India take up to mitigate the impacts of CBAM ?
  1. Over 35 Indian companies have put in place targets to achieve net zero.
  2. There is general acceptance of Internal carbon pricing by various Indian businesses.
  3. India should negotiate with EU for clean technologies and financing mechanisms to aid in making India's production sector more carbon efficient.
  4. India should implement a Decarbonization Principle, which refers to reducing or eliminating greenhouse gas emissions from human activities such as transportation, power generation, manufacturing, and agriculture. 
  5. The government could complement its existing schemes such as the National Steel Policy and the Production Linked Incentive (PLI) scheme with a Decarbonization Principle. 
  6. India could begin preparing for the new system by establishing a Carbon Trading System, as China and Russia are doing. 
The Pala Dynasty (750 AD – 1150 AD)
The Chola Empire (900-1200) || Short Notes || Medieval Indian History || Short Notes  

 

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