|Introduction: Describe the CBAM program of the EU.|
Body: What are its implications on India and how does it affect India’s climate policy?
Conclusion: Conclude with a positive statement.
Carbon Border Adjustment Mechanism (CBAM) is an initiative of the EU that involves imposing tariffs on imports from countries that are seen to be using carbon-intensive methods of production. The tariff imposed on the import of goods by the EU will lead to competitive parity with the domestically manufactured goods in the EU which are subjected to high prices because of carbon emission. The CBAM is expected to achieve three objectives. First, to reduce EU emissions; second, for the EU not to lose competitiveness in carbon-intensive goods; and third, to make the targeted countries reduce the carbon intensity of their exports.
What is its implication for countries like India?
- Exports: India’s exports of cement, iron and steel, energy, fertilizers, aluminium, and hydrogen to the EU will suffer. Even while these exports only account for 1.8% of all exports to the EU, they still cast doubt on the free trade tenet.
- Incompatible with WTO: The CBAM policy transgresses WTO non-discrimination standards. It goes against fundamental tenets of fairness to regard domestically produced commodities equally with goods imported from other nations.
- The increased price of goods: The carbon tax on iron, steel, and aluminium will cause prices for Indian commodities to rise, which will reduce demand for these products in the EU and limit India’s ability to export.
How does it affect India’s stand on climate justice?
- Climate Finance: CBAM will affect the financial transfer from developed countries to developing nations to reduce carbon emissions and mitigate climate change.
- Relaxed Carbon Laws: In a move to meet the demands of developed nations, there will be more relaxation or bypassing of carbon regulations in India which itself will adversely affect climate change.
- Push to Renewables: CBAM will push developing nations to move towards renewable energy. Increased pressure to reduce emissions will drive India to foster research and innovation in clean energy technologies.
- Carbon price market mechanism: India needs to have a carbon pricing market mechanism to maintain competitiveness in the global world related to price volatility, while at the same time reducing the effects of CBAM.
CBAM raises issues regarding linkages between trade and the environment which require international cooperation, and negotiations within the framework of WTO to prevent principles of free trade slip into trade protectionism.