THE CONTEXT: Global climate change necessitates collaboration between developed and developing nations. However, protectionist measures such as the European Union’s Carbon Border Adjustment Mechanism (EU-CBAM) have raised concerns about their impact on developing economies. While the EU views CBAM as a tool to prevent carbon leakage and promote global decarbonization, developing countries, including India, see it as an unfair burden that disrupts trade and industrial growth.
UNDERSTANDING THE EU-CBAM:
-
- The EU-CBAM applies a carbon price on imports of carbon-intensive goods like iron, steel, aluminium, cement, fertilizers, electricity, and hydrogen to ensure parity with EU-produced goods under its Emissions Trading System (ETS).
- It aims to address “carbon leakage,” which occurs when firms relocate production to countries with less stringent emission norms.
- The mechanism will enter its definitive phase in 2026 after a transitional period (2023–2025) to allow businesses to adapt.
IMPACT ON DEVELOPING ECONOMIES:
-
- Developing nations often rely on exports of carbon-intensive goods. For instance, 25.7% of India’s exports to the EU are affected by CBAM, predominantly iron and steel (76.83%), followed by aluminium and cement.
- Least-developed countries (LDCs) are not exempt from CBAM despite their limited historical emissions and financial capacity to decarbonize.
- Africa could see a 13.9% reduction in aluminium exports and an 8.2% decline in iron and steel exports to the EU, with GDP losses of up to 1.12% in extreme scenarios.
THE ISSUES:
-
- Violation of Climate Justice Principles: CBAM contradicts the CBDR principle enshrined in the Paris Agreement and UNFCCC, recognizing that developed nations bear a more significant historical responsibility for greenhouse gas (GHG) emissions. Developed countries like the EU have historically contributed over 70% of cumulative emissions since 1850, while Africa accounts for less than 4%. Despite this, CBAM imposes uniform carbon pricing on imports from developing countries without considering their historical emissions or limited decarbonization capacity.
- Lack of Financial and Technical Support: Developing economies often lack the financial resources and technical expertise to comply with stringent EU standards. For instance, only 1 out of 70 low-income countries have implemented a carbon pricing mechanism. UNCTAD emphasized that policies like CBAM must align with global equity principles by providing financial and technical support to vulnerable economies.
- Economic Disruption in Developing Nations: The EU accounts for 20.33% of India’s total merchandise exports, with 25.7% subject to CBAM regulations. Iron and steel alone constitute 76.83% of these exports. A carbon price of €87 per tonne could reduce African exports to the EU by 5.72% and GDP by 1.12%.
- Sectoral Vulnerabilities: Carbon-intensive sectors such as iron, steel, aluminium, cement, fertilizers, and electricity are most affected. Mozambique and Zimbabwe face significant exposure due to their reliance on these exports. Vietnam and Thailand could see GDP reductions if CBAM expands to include plastic products.
- Limited Environmental Effectiveness: CBAM is expected to reduce global CO2 emissions by only 0.1%, raising questions about its efficacy as a climate mitigation tool. CBAM focuses on penalizing imports rather than incentivizing cleaner production globally.
- Revenue Allocation Controversy: The EU retains revenues generated from CBAM (€5–14 billion annually) for initiatives like NextGenerationEU rather than sharing them with affected trading partners. By imposing stringent import requirements, CBAM risks fragmenting global markets into low-carbon products for developed regions like the EU and emissions-intensive products for less regulated markets in developing countries.
THE WAY FORWARD:
-
- Equity-Based Accounting (EBA): India has advocated for EBA, which allocates emission reduction responsibilities based on factors like per capita GDP, historical emissions, and avoided emissions through trade. This approach ensures a fairer distribution of mitigation burdens.
- Sectoral Mitigation Plans: Developing nations can implement sector-specific mitigation plans with clear emission reduction targets while diversifying production processes for different markets.
- Leverage CBAM Revenues for Global Decarbonization: Advocate for a portion of CBAM revenues to fund green technology transfers and capacity building in developing economies. UNCTAD suggests that redirecting even 20% of CBAM revenues could significantly enhance African and Asian decarbonization efforts.
- Leakage Border Adjustment Mechanism (LBAM): LBAM focuses exclusively on preventing carbon leakage without imposing unnecessary economic burdens on trading partners. LBAM applies product-specific tariffs based on the carbon intensity of imports but avoids requiring detailed emissions data, reducing administrative costs. LBAM applies uniform tariffs across all origin countries, preventing export rerouting through third nations with lower benchmarks.
- Carbon Clubs: A coalition of countries agreeing to harmonized carbon pricing standards and mutual exemptions from border adjustments like CBAM. Carbon clubs could offer a cooperative alternative to CBAM by fostering equitable partnerships between developed and developing countries.
- Collaborative Technology Transfer Agreements: Developed nations provide financial and technical assistance to help developing countries adopt cleaner production technologies. The UNFCCC’s Technology Mechanism has supported over 80 technology transfer projects in developing countries since its inception in 2010.
THE CONCLUSION:
The real challenge is not rejecting mechanisms like CBAM outright but reshaping them to reflect shared responsibilities and mutual benefits. Proposals such as the Leakage Border Adjustment Mechanism (LBAM), Equity-Based Accounting (EBA), revenue redistribution mechanisms, and collaborative technology transfers offer viable pathways toward achieving these goals.
UPSC PAST YEAR QUESTION:
Q. Describe the major outcomes of the 26th session of the Conference of the Parties (COP) to the United Nations Framework Convention on Climate Change (UNFCCC). What are the commitments made by India in this conference?
MAINS PRACTICE QUESTION:
Q. The European Union’s Carbon Border Adjustment Mechanism (CBAM) has been criticized as a protectionist measure that disproportionately impacts developing countries while undermining the principles of climate justice. Analyse
SOURCE:
https://www.thehindu.com/opinion/op-ed/how-india-could-counter-the-cbam/article68887373.ece
Spread the Word