Carbon Border Adjustment Mechanism (CBAM)

GS3 – Environment

Context:

The European Union’s Carbon Border Adjustment Mechanism (CBAM)—a carbon tax on imports—has sparked backlash from BRICS nations, who see it as discriminatory and unfair.

What is CBAM?
  • A carbon border tax imposed by the EU on imports from countries with higher carbon emissions than EU industries.
  • Set to become operational in 2026.
  • Initially applies to carbon-intensive goods such as:
    • Iron and steel
    • Cement
    • Aluminium
    • Fertilisers
    • Electricity
  • The aim is to encourage cleaner production practices globally.
  • Exporters from countries with comparable carbon pricing mechanisms to the EU can avoid paying for CBAM certificates.
Why Is It Controversial?
  • Equity concerns: Developing countries, especially BRICS, argue the policy imposes disproportionate trade burdens on them and acts as a unilateral protectionist measure.
  • Trade rules: While the EU claims compliance with WTO rules, others argue it constitutes non-tariff barriers.
  • Climate justice: Critics contend CBAM contradicts the Paris Agreement’s principle of Common but Differentiated Responsibilities (CBDR).
  • Difference from Carbon Markets:
    • Carbon Markets (Paris Agreement – Article 6.2) involve trading carbon credits.
    • CBAM is a direct tax on the carbon footprint of imported goods.
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