05 Jun CARBON BORDER ADJUSTMENT MECHANISM (CBAM)
This article covers “Daily Current Affairs” and the topic details “Carbon border adjustment Mechanism”. The topic “Carbon border adjustment Mechanism” has relevance in the Economy and Climate Change section of the UPSC CSE exam.
Relevance:
For Prelims:
What is CBAM?
For mains
GS 3: Economy and Climate Change
Objectives of CBAM?
Challenges for India?
Why in the news?
The European Union’s (EU) key climate law, the Carbon Border Adjustment Mechanism (CBAM), has spooked India. New Delhi fears that CBAM will cripple the export of its carbon-intensive products to the EU.
What is CBAM?
The Carbon Border Adjustment Mechanism (CBAM) is a policy tool adopted by the European Union(EU) that aims to address carbon leakage and promote a level playing field in international trade by addressing disparities in carbon pricing between countries. It is designed to reduce the risk of carbon leakage, which occurs when stringent climate policies in one country lead to the relocation of carbon-intensive industries to countries with less stringent climate regulations, resulting in global emissions remaining unchanged or even increasing.
The CBAM works by imposing a tariff on imported goods based on the carbon content embedded in their production. The mechanism seeks to ensure that imported products face a similar carbon cost as domestic products subject to domestic carbon pricing mechanisms. By doing so, it aims to prevent carbon-intensive industries from gaining a competitive advantage over industries in countries with stronger climate policies.
The CBAM can operate in various ways. One approach is to require importers to purchase carbon certificates or allowances corresponding to the embedded carbon emissions in the imported goods. Another approach is to levy a carbon tax directly on imported products based on their carbon footprint.
The Carbon Border Adjustment Mechanism (CBAM) is a policy tool introduced as part of the “Fit for 55 in 2030 package,” which is the European Union’s plan to reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels, in accordance with the European Climate Law. The CBAM aims to contribute to emission reduction efforts by ensuring that imported goods face equivalent carbon costs as domestically produced products within the EU.
Objectives of CBAM?
- Address Carbon Leakage: One of the main objectives of the CBAM is to tackle carbon leakage. Carbon leakage occurs when stringent climate policies in one country lead to the relocation of carbon-intensive industries to countries with weaker or no climate regulations. The CBAM aims to prevent this by ensuring that imported goods face a similar carbon cost as domestically produced goods subject to domestic carbon pricing mechanisms. By doing so, it aims to prevent carbon-intensive industries from gaining a competitive advantage by moving production to countries with lower environmental standards.
- Level the Playing Field: The CBAM aims to create a level playing field in international trade by ensuring that all countries adopt similar carbon pricing mechanisms or standards. It seeks to avoid situations where industries in countries with stronger climate policies face higher production costs due to carbon pricing, while industries in countries with weaker climate policies do not face such costs. The CBAM intends to promote fair competition and prevent distortions in global trade.
- Encourage Emission Reductions: By imposing a carbon cost on imported goods, the CBAM aims to incentivize exporters from countries with weaker climate policies to reduce their carbon emissions. Exporters will face the risk of higher tariffs or costs for their carbon-intensive products, which can encourage them to adopt cleaner technologies, reduce emissions, and improve their environmental performance.
- Promote Global Climate Goals: The CBAM aims to contribute to global climate goals by encouraging countries to align their climate policies and take stronger action to reduce carbon emissions. It sends a signal that carbon emissions will have economic consequences in international trade, providing an incentive for countries to adopt ambitious climate policies and work towards achieving global emission reduction targets.
Challenges for India?
- Impact on Export Competitiveness: As a developing country, India has a significant share of carbon-intensive industries, such as steel, cement, and textiles. Implementation of the CBAM may increase the cost of exporting these goods, potentially affecting their competitiveness in international markets. This could have implications for India’s export-oriented industries and their ability to compete with counterparts from countries with less stringent climate policies.
- Administrative Complexity: Implementing the CBAM requires accurately measuring and verifying the carbon content of imported goods. For a vast and diverse economy like India, establishing robust monitoring, reporting, and verification systems can be complex and administratively burdensome. It would require significant investment in infrastructure, expertise, and resources to effectively implement the CBAM.
- Data Availability and Accuracy: The CBAM relies on accurate data on the carbon emissions embedded in imported goods. Availability and accuracy of such data can be a challenge, especially for developing countries like India, where comprehensive emissions data may not be readily available for all sectors and industries. Obtaining reliable data for carbon footprint calculations could be a hurdle in implementing the CBAM effectively.
- Potential Trade Disputes: The CBAM may be perceived as protectionist or discriminatory by some countries. If India’s exports face higher tariffs or additional costs due to the CBAM, it could lead to trade disputes and challenges under international trade rules, such as those governed by the World Trade Organization (WTO). Resolving these disputes and ensuring a fair and non-discriminatory application of the CBAM would be crucial for India’s trade interests.
- Harmonization with Domestic Climate Policies: India has its own domestic climate policies and goals to address climate change and reduce emissions. Aligning the CBAM requirements with India’s domestic policies and regulations will be necessary to ensure coherence and avoid conflicting obligations. Harmonization between the CBAM and India’s climate objectives will require careful coordination and policy coherence.
Source:https://www.thehindu.com/opinion/op-ed/international-trade-has-a-carbon-problem/article66923521.ece
Q.1 Which of the following statements regarding the Carbon Border Adjustment Mechanism (CBAM) is/are correct?
1.CBAM aims to address carbon leakage and promote a level playing field in international trade.
2.CBAM imposes a tariff on imported goods based on their carbon content.
3.CBAM is a policy tool introduced by the United Nations to reduce global greenhouse gas emissions.
4.CBAM incentivizes exporting countries to reduce their carbon emissions to avoid additional costs.
Select the correct answer using the codes below:
(a) 1 and 2 only
(b) 1, 2, and 4 only
(c) 2 and 3 only
(d) 1, 3, and 4 only
Answer: (a)
Q.2 Which of the following statements accurately describe the objectives of the Carbon Border Adjustment Mechanism (CBAM)?
1.CBAM aims to prevent carbon leakage and promote fair competition in international trade.
2.CBAM imposes a carbon tax on imported goods based on their carbon footprint.
Select the correct answer using the codes below:
(a)Both 1 and 2
(b) 1 only
(c) 2 only
(d) None of the above
Answer: (b)
Q.3 “Discuss the concept of the Carbon Border Adjustment Mechanism (CBAM) and its potential implications for global trade and climate action. Analyze the challenges and opportunities associated with the implementation of CBAM, particularly in the context of developing countries like India. Suggest policy measures and strategies to address the concerns and maximize the benefits of CBAM for both international trade and climate change mitigation.”
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