Carbon Border Adjustment Mechanism (CBAM)
CBAM is part of the “Fit for 55 in 2030 package", which is the EU’s plan to reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels in line with the European Climate Law.
The CBAM is a policy tool aimed at reducing Carbon Emissions by ensuring that imported goods are subject to the same carbon costs as products produced within the EU.
CBAM will require importers to annually declare the quantity of goods and their embedded Greenhouse Gas (GHG) emissions
To offset these emissions, importers will need to surrender a corresponding number of CBAM certificates
the price of which will be based on the weekly average auction price of EU Emission Trading System (ETS) allowances in €/tonne of CO2 emitted.
The definite phase of the CBAM will enter into force on January 1, 2026
Objectives:
CBAM will ensure its climate objectives are not undermined by carbon-intensive imports and spur cleaner production in the rest of the world.
Significance:
It can encourage non-EU countries to adopt more stringent environmental regulations, which would reduce global carbon emissions.
It can prevent carbon leakage by discouraging companies from relocating to countries with weaker environmental regulations.
The revenue generated from CBAM will be used to support EU climate policies, which can be learned by other countries to support Green Energy.
Complexities Surrounding CBAM and Its Potential Implications
India views CBAM as discriminatory, as it imposes emissions reduction responsibilities on exporting countries, even if the products are consumed elsewhere.
The EU accounts for a large portion of India’s exports, and CBAM could increase costs for Indian exporters, especially in industries like steel and cement.
Developing countries with fewer emissions reduction measures are unfairly blamed for climate change due to their exports.
CBAM could undermine the principle of Common but Differentiated Responsibilities, as it doesn’t consider historical emissions or the capacities of developing countries to reduce emissions.
The EU keeps the revenue generated by CBAM, raising questions about fairness and whether it should share the money to support developing nations’ climate efforts.
Way Forward
India argues that developing countries should be given more time to adapt to CBAM, similar to how the EU has set long-term targets for its own emissions.
India suggests that the EU should share CBAM revenues with non-EU countries to fund climate actions and technology transfers.
India proposes Equity-based Accounting (EBA), which would account for emissions reduction responsibilities based on factors like GDP and historical emissions, offering a fairer approach.
India should align with other developing nations to advocate for equitable climate policies that consider economic and historical differences among countries.
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