EU’s Carbon Border Adjustment Mechanism (CBAM) is Unfair Says Commerce Minister

GS Paper III Environment and Ecology

Context:

India recently criticized the European Union’s (EU) plan to impose a Carbon Tax on imports, calling it a poorly thought-out decision.

India believes this CBAM tax would severely harm the EU’s manufacturing industry and even if the plan goes ahead in 2026, India would counteract it by imposing its own carbon tax.

What is carbon Tax?

A carbon tax, also known as a price on carbon, is a price levied on emissions from fossil fuel sources, be it from coal, oil, natural gas, or gasoline.

Purpose of introducing a new carbon tax on such imports:

India is considering a strategy to impose domestic taxes on high-carbon goods and utilize the generated revenue to facilitate its transition towards green energy.
This approach aims to circumvent the European Union’s carbon tax on imports.

Fit for 55 Packages

The Fit for 55 packages is a set of proposals to revise and update EU legislation and to put in place new initiatives with the aim of ensuring that EU policies are in line with the climate goals.

CBAM is the EU’s tool to fight carbon leakage and is one of the central pillars of the EU’s ambitious Fit for 55 Agenda.
It will equalize the price of carbon between domestic products and imports.
This will ensure that the EU’s climate policies are not undermined by production relocating to countries with less ambitious green standards or by the replacement of EU products with more carbon-intensive imports.
CBAM is a WTO-compatible measure that encourages global industry to embrace greener and more sustainable technologies.
In its transitional phase, CBAM will only apply to imports of cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen.
EU importers of those goods will have to report on the volume of their imports and the greenhouse gas (GHG) emissions embedded during their production, but without paying any financial adjustment at this stage.