|Introduction: What is CBAM|
Body: Why is it raised concern and how is India dealing with it
Conclusion: Conclude by giving balance view.
Carbon Border Adjustment Mechanism (CBAM) is a key policy of the EU related to climate change. The policy ensures that imports of carbon-intensive products like cement, iron and steel, electricity, fertilizers, aluminium, and hydrogen are subject to the same economic costs as products by EU producers. It requires importers to report the number of goods imported and their embedded GHG emissions on an annual basis. CBAM is part of the “Fit for 55 in 2030 package”, 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.
Why has it raised concerns in India?
- Effect on exports: It will hurt India’s exports to the EU namely cement, iron and steel, electricity, fertilizers, aluminium, and hydrogen. While these exports are only 1.8% of total exports to the EU it nevertheless raises concern about the free trade principle.
- Violate WTO principles: CBAM policy violates WTO principles of non-discrimination. It violates important principles of equal treatment to goods originating from another country to be treated at par with the same goods produced domestically.
- Increased price for Indian goods: Indian goods will be subjected to increased pricing owing to the carbon tax on iron, steel and aluminium which will lead to a decrease in the demand for these goods in the EU and affect Indian export potential.
What steps can India take to resolve this issue?
- Negotiation with EU: CBAM is an ongoing issue in the India-EU FTA discussions where India is trying to secure gains for its exporters while abiding by the principles of WTO.
- Reaching out to WTO: India could challenge CBAM in the WTO dispute settlement body on grounds of trade protectionism and violation of Most-favoured Nation treatment.
- Lowering GHG emissions: Investing more in renewable and green energy like wind, and solar and in developing carbon capture technology can lower emissions generated from manufacturing processes.
- 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.
- Transfer of clean technologies: Government of India should pursue consistent efforts to negotiate with developed countries to transfer clean technologies and fiance mechanisms as promised in various agreements to help make India’s manufacturing sector more carbon efficient.
CBAM once again raises debate about linkages between trade and the environment. Balancing both is extremely crucial and mutual negotiations should provide the answer rather than trade protectionism.