What is the Carbon Border Adjustment Mechanism (CBAM)? Objectives, Impacts and Concerns for India, Criticisms, and Challenges

Why in News ?

• The European Union (EU) has started implementing the Carbon Border Adjustment Mechanism (CBAM) as part of its “Green Deal” to tackle climate change.
• This policy impacts countries that export high carbon-emitting products to Europe — including India.

What is CBAM ?

• CBAM is a carbon tax-like mechanism imposed on imported goods in the EU to offset the carbon emissions generated during their production.
• In simple terms: If a product is manufactured in a country with high carbon emissions, it will attract an additional charge (carbon tax) when it enters the European market.

Objectives of CBAM

1. Prevent Carbon Leakage – To stop companies from relocating production to countries with weaker environmental regulations.
2. Ensure Fair Competition – To create a level playing field for EU industries that already comply with strict Emission Trading System (ETS) rules.
3. Encourage Global Green Transition – To motivate other countries to reduce emissions in their manufacturing processes.

Sectors Covered under CBAM

Initially (2023–2025), the following sectors are included:

• Iron & Steel
• Cement
• Aluminium
• Fertilizers
• Electricity
• Hydrogen

(Other products such as chemicals and plastics may be added later.)

Implementation Phases

Impact on India

1. Effect on Exports
   • India is a major exporter of steel, aluminium, and cement to the EU.
   • CBAM will make these products costlier, reducing competitiveness.
2. Industrial Pressure
   • Indian industries will face pressure to reduce emissions and adopt cleaner technologies.
3. Investment Opportunities
   • It may create new opportunities in green energy, carbon capture, and renewable technologies.

India’s Concerns

1. Unequal Burden on Developing Countries
   • CBAM goes against the principle of Climate Justice, as developing nations are still in their industrialization phase.
2. Violation of WTO Norms
   • It acts like a trade barrier and contradicts the principles of free trade under the WTO.
3. Administrative Complexity
   • Measuring, reporting, and verifying carbon emissions involves complex processes.

India’s Response and Preparedness

• Carbon Credit Trading Scheme (CCTS), 2023: Encourages domestic industries to improve carbon efficiency.
• National Green Hydrogen Mission and Energy Transition Plan: Aim to decarbonize Indian industries.
• Global Advocacy: India continues to emphasize equity and climate justice at international platforms.

Global Outlook

• The U.S. is also considering a Carbon Border Tax.
• Canada, Japan, and the U.K. are planning similar mechanisms.
• The “Cost of Carbon” is becoming a major economic factor in global trade.

Criticism and Challenges

1. Seen as a form of protectionism by the EU.
2. Reduces competitiveness of non-EU exporters.
3. Developing nations face financial and technological barriers in adopting green technologies.
4. Complex monitoring and reporting mechanisms.