Climate trade barriers: Go for realistic idealism

Source: The post is based on the article “Climate trade barriers: Go for realistic idealism” published in the Livemint on 17th May 2023.

Syllabus: GS 3 – Environment and Bio-diversity: Conservation.

Relevance: About Carbon Border Adjustment Mechanism of EU.

News: Recently, the EU gave approval to its Carbon Border Adjustment Mechanism (CBAM). This will impact Indian iron, steel and aluminium shipments worth more than 2021’s $8 billion.

About Carbon Border Adjustment Mechanism (CBAM)

According to EU, the CBAM will ensure its climate objectives are not undermined by carbon-intensive imports and spur cleaner production in the rest of the world. Apart from that, EU policy is trying to level the internal field for EU and non-EU players.

Must read: EU’s carbon border tax – Explained, pointwise

How it will create unfair climate trade barriers?

Restriction on importers: Annually, EU importers will have to declare direct and indirect emissions caused by their previous year’s imports. From 2026, they must submit equivalent CBAM certificates priced on the basis of weekly average auction prices in the EU’s market for carbon permits.

Success not guaranteed: The CBAM idea and its impact are unproven. The EU needs a world market to emerge to meet its CBAM ambitions.

Double pricing: Carbon has already been priced high in India. If India adopts carbon pricing expansively in India, the price will need to be low, just a fraction of Europe’s.

What are India’s options against the CBAM?

Read here: Green crosshairs – A multi-pronged counter is warranted to tackle the EU’s carbon tax plans

What should India do?

It will take years of data to properly assess the impacts of the EU’s carbon tax. So, India should adopt a stance that combines realism on securing India’s export interests with idealism on saving the planet. A global market for carbon is an idea that deserves a fair chance.

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