CARBON BORDER ADJUSTMENT MECHANISM – ENVIRONMENT
News:
What is the EU’s carbon
border adjustment mechanism?
What's
in the news?
●
The co-legislators at the European
Commission signed the Carbon Border Adjustment Mechanism (CBAM).
Carbon
Border Adjustment Mechanism (CBAM):
●
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 and
to encourage cleaner industrial production in non-EU countries.
Objective:
●
Its primary objective is to avert ‘carbon leakage’.
○
Carbon leakage occurs when companies based
in the EU move carbon-intensive production abroad to countries where less
stringent climate policies are in place than in the EU or when EU products get
replaced by more carbon-intensive imports.
Key
Provisions:
●
From 2026, once the CBAM is fully
implemented, 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 EU 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.
●
Importers would have to annually declare
by May-end the quantity and embedded emissions in the goods imported into the
region in the preceding year.
Sectors
covered:
●
CBAM would initially apply to imports of certain goods and selected precursors, whose
production is carbon-intensive and are at risk of ‘leakage’ such as the cement,
iron and steel, aluminium, fertilizers, electricity and hydrogen sectors.
Impact
of EU’s CBAM:
●
In 2021, the United Nations Conference on
Trade and Development (UNCTAD) had concluded that Russia, China and Turkey were most exposed to the mechanism.
●
India,
Brazil and South Africa would be most affected among the
developing countries. Mozambique would be the most exposed least-developing
country.
○
EU as a whole represents about 14% of
India’s export mix for all products, steel and aluminium included.