What is the EU's Carbon Border Adjustment Mechanism (CBAM)?
The CBAM is a proposed tariff that the European Union plans to impose on imports of goods that are associated with high carbon emissions. The aim is to discourage carbon-intensive production methods outside the EU, to prevent 'carbon leakage' (where companies relocate production to regions with laxer emissions regulations), and to promote greener practices.
How Much is the Proposed Tariff?
The EU's proposal is to impose tariffs ranging from 20% to 35% on imports of high-carbon goods. Products in the spotlight include steel, iron ore, cement, aluminium, fertilisers, electricity, and hydrogen.
Why is India Challenging the CBAM?
India perceives the CBAM as discriminatory and a barrier to trade. Top government officials assert that under the guise of environmental protection, the EU is introducing a trade barrier that would adversely affect exports, not just from India but also from many other developing countries.
India plans to highlight its commitment to the U.N. Paris climate agreement as evidence of its dedication to environmental protection and will question the legality of the CBAM at the WTO.
Initial projections indicate that around $8 billion of Indian exports, mainly steel, iron ore, and aluminium, would face these tariffs.
What Are India's Plans?
India intends to file a complaint with the WTO against the EU's decision and seek relief, especially for small exporters.
Policymakers are considering proposals from sectors like steel for safeguard measures against imports as a reciprocal action.
The Federation of Indian Export Organisations has warned that the CBAM could compromise India's free trade agreements with other nations.
What Are the Broader Implications?
The European Union has positioned itself as a leader in the global fight against climate change, setting ambitious targets to become a net-zero emitter of greenhouse gases by 2050.
However, there are concerns that other nations, including the UK, Canada, Japan, and the US, might adopt similar measures, intensifying global trade tensions.
The stance nations like India take against the CBAM could set a precedent for future international trade and environmental negotiations.
What’s Next?
The global community will be closely watching the negotiations and deliberations at the WTO. The outcome could have significant implications for the balance between international trade and environmental conservation.
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