Note4Students
From UPSC perspective, the following things are important :
Prelims level: CBAM
Mains level: Not Much
The Indian government will be analyzing how the European Union’s (EU’s) proposed carbon border adjustment mechanism (CBAM) will affect the Indian industry. The CBAM is set to start from October this year.
Carbon Border Adjustment Mechanism (CBAM)
| Proposed by | European Union (EU) |
| Purpose | To reduce carbon emissions from imported goods and prevent competitive disadvantage against countries with weaker environmental regulations |
| Objectives | Reduce carbon emissions from imported goods
Promote a level playing field between the EU and its trading partners Protect EU companies that have invested in green technologies |
How does CBAM work?
| Coverage | Applies to imported goods that are carbon-intensive |
| Integration | Covered by the EU’s Emissions Trading System (ETS), which currently covers industries like power generation, steel, and cement |
| Implementation | CBAM taxes would be imposed on the carbon content of imported goods at the border, and the tax rates would be based on the carbon price in the EU ETS |
| Exemptions | Possible exemptions for countries that have implemented comparable carbon pricing systems |
| Revenue Use | Revenue generated from CBAM taxes could be used to fund the EU’s climate objectives, such as financing climate-friendly investments and supporting developing countries’ climate efforts |
Who will be affected by CBAM?
| Details | |
| Countries | Non-EU countries, including India, that export carbon-intensive goods to the EU |
| Items | Initially covers iron and steel, cement, aluminium, fertilisers, and electric energy production |
| Expansion | The scope of the CBAM may expand to other sectors in the future |
Advantages of CBAM
- Encourages non-EU countries to adopt more stringent environmental regulations, reducing global carbon emissions.
- Prevents carbon leakage by discouraging companies from relocating to countries with weaker environmental regulations.
- Generates revenue that could be used to support EU climate policies.
Challenges with CBAM
- Difficulty in accurately measuring the carbon emissions of imported goods, especially for countries without comprehensive carbon accounting systems.
- Potential for trade tensions with the EU’s trading partners, especially if other countries implement retaliatory measures.
Conclusion
- The CBAM is a proposed policy by the EU to reduce carbon emissions from imported goods and to promote a level playing field between the EU and its trading partners.
- Although the CBAM has its challenges, it has the potential to incentivize non-EU countries to adopt more stringent environmental regulations and reduce global carbon emissions.
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