China, representing the BASIC countries (Brazil, India, South Africa, and China), has submitted a request to the UNFCCC for discussions on “restrictive trade measures” such as Carbon Border Adjustment Mechanism (CBAM).
India and China’s Position at COP29
- Both nations, part of the BASIC group, submitted a formal request at COP29 to discuss climate-linked trade restrictions.
- They argue for a balanced approach that avoids economic discrimination while still addressing global climate goals.
- While the proposal was sidelined, the issue remains contentious and is expected to resurface in future discussions.
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About Carbon Border Adjustment Mechanism (CBAM)
| Aspect |
Details |
| Introduced By |
European Union (EU) in 2023. |
| Purpose |
- Prevent carbon leakage, where industries move to regions with weaker environmental standards to avoid emissions regulations.
- Encourage cleaner production practices globally.
|
| Target Goods |
- Taxes applied to imports with significant carbon emissions, including steel, cement, aluminum, and other energy-intensive goods.
|
| Legislative Framework |
- Part of the EU’s “Fit for 55 in 2030 package”, aiming to achieve a 55% reduction in GHG emissions by 2030 (compared to 1990 levels).
|
| Mechanism |
- Importers must surrender CBAM certificates annually, based on the declared carbon content of imported goods.
- Prices of certificates reflect the carbon cost, aligning with the EU’s carbon pricing under the Emissions Trading System (ETS).
|
| Applicability |
- Based on the actual declared carbon content of imported goods.
|
| EU’s ETS Connection |
- Works similarly to the EU-ETS, which sets a cap on permissible GHG emissions.
- Ensures a level playing field for EU industries subject to emissions regulations.
|
| Global Impact |
- Encourages countries exporting to the EU to adopt cleaner technologies.
- Influences global supply chains to factor in carbon costs.
|
Issues Regarding CBAM for Developing Nations
- Export Competitiveness: Developing countries, including India and China, argue that CBAM disproportionately harms their exports.
- Differentiated Responsibilities: CBAM overlooks the principle of “common but differentiated responsibilities” embedded in the Paris Agreement, which recognizes the differing capacities of nations to combat climate change.
- Economic Disadvantage: Developed nations have historically been major polluters and have transitioned to greener technologies over decades.
- Equipped with cleaner technologies, developed Countries will benefit from CBAM as their goods are less likely to be taxed, further marginalizing developing nations.
- Violation of Agreements: Developing nations argue that trade restrictions like CBAM violate international agreements such as the Paris Accord, which seeks to safeguard developing nations from the socio-economic impacts of climate response measures.
- Unilateral Actions: India, China, and others claim that unilateral measures like CBAM bypass the collaborative framework of global climate negotiations.
- They fear such measures could set a precedent for protectionism disguised as climate action.
Nearshoring and Reshoring
- Nearshoring: Relocating business processes or production to a nearby country, often within the same region.
- Example: US companies moving manufacturing operations to Mexico or Central America.
- Reshoring: Bringing business operations back to the home country.
- Example: European companies relocating production from Asia to Europe to reduce supply chain risks and improve quality control.
- Both nearshoring and reshoring are driven by factors like rising labour costs in traditional manufacturing hubs, geopolitical tensions, supply chain disruptions, and a growing emphasis on sustainability and local production.
|
- Accelerating Protectionism: CBAM and similar measures could lead to broader trade restrictions, disrupting global supply chains.
- Countries might adopt “nearshoring” or “reshoring” strategies, prioritising local production over global trade.
- Innovation and Environmental Standards: On the positive side, such measures might spur innovation in green technologies and enforce higher environmental standards globally.
- Disruptions in Global Trade: Increasing climate-induced natural disasters already pose risks to global supply chains.
- Trade measures linked to climate goals add to these disruptions, making international trade more uncertain.
- Potential Spillover: Other nations, including Canada and the UK, are considering their versions of CBAM, which could extend its impact on global trade.
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About BASIC Group
- Origin: Formed on 28th November 2009 by Brazil, South Africa, India, and China.
- Objective: To present a united front on climate change negotiations, particularly emphasizing the need for developed countries to take the lead in emissions reduction and provide financial support to developing countries.
- Key Role of BASIC at COPs:
- Played a crucial role in the Copenhagen Accord (2009), securing commitments from developed countries for climate finance.
- Successfully negotiated for the inclusion of key principles like equity, common but differentiated responsibilities, and respective capabilities in international climate agreements.
- Contributed to the Paris Agreement (2015) by pushing for ambitious climate action while safeguarding the interests of developing countries.
- Continuously advocates for a just and equitable global climate regime.
|
November 15, 2024
