EUROPEAN COMMISSION CARBON BORDER ADJUSTMENT MECHANISM (CBAM)

  • The CBAM has been described as a “landmark tool” to put a “fair price on the carbon emitted during the production of carbon intensive goods that are entering the EU’.
  • Therefore, it would encourage cleaner industrial production in non-EU countries.
  • The reporting system under the regulation would be enforced from October 2023 and Importers would start paying the financial levy from 2026.

Implications of CBAM:

  • Once the CBAM is fully implemented i.e., from 2026, the importers in the EU would have to buy carbon certificates corresponding to the payable carbon price of the import had the product been produced in the continent, under its carbon pricing rules.
  • Conversely, if a non-EU producer is paying a price (or tax) for carbon used to produce the imported goods, back home or in some other country, the corresponding cost would be deducted for the EU importer.
  • The European Commission, in coordination with relevant authorities of the member states, would be responsible for reviewing and verifying declarations as well as managing the central platform for the sale of CBAM certificates.
  • Importers would have to annually declare the quantity and embedded emissions in the goods imported into the region in the preceding year.

What are the concerns for India and other Countries?

  • CBAM would initially apply to imports of certain goods whose production is carbon-intensive and are at risk of ‘leakage’ such as the cement, iron and steel, aluminum, fertilizers, electricity and hydrogen sectors.
  • Eventually, once fully phased in, it would capture more than half of the emissions in ETS covered sectors.
  • According to the United Nations Conference on Trade and Development (UNCTAD) Russia, China and Turkey were most exposed to the CBAM.
  • Also, that India, Brazil and South Africa would be most affected among the developing countries.
  • Countries in the EU combined represent about 14% of India’s export mix for all products, including steel and aluminium.
  • Since India’s products have a higher carbon intensity than its European counterparts, the carbon tariffs imposed will be proportionally higher making Indian exports substantially uncompetitive.
  • The international climate policies (including CBAM) will compel other countries to impose similar regulation eventually translating to ‘a significant impact’ on India’s trading relationships and balance of payments.

SOURCE: THE HINDU, THE ECONOMIC TIMES, PIB

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