BRICS nations have criticized the EU’s Carbon Border Adjustment Mechanism (CBAM), calling it a restrictive trade policy that undermines their transition to a low-carbon economy.

What is CBAM?

• CBAM is an import duty that is imposed by Europe on goods produced in other countries by processes that lead to greater carbon emissions than domestic European manufacturers are allowed to emit.

• It is a climate policy tool introduced by the European Union (EU) in 2023. Its full implementation will begin in 2026, with a transitional phase from 2023 to 2025.
• Purpose:
  • To prevent “carbon leakage” — the shifting of production from countries with strict climate rules (like the EU) to those with laxer environmental regulations.
  • To level the playing field by taxing imports that have a higher carbon footprint than EU standards permit.

• CBAM is part of the “Fit for 55 in 2030 package.
• The CBAM is designed to be compatible with WTO rules.

How does it work?

• Importers need to purchase certificates that match the EU Emissions Trading System (ETS) carbon price.
• Ensures fair competition between EU producers and foreign exporters by applying a consistent carbon cost.
• Initially applies to carbon-intensive goods like steel, cement, aluminium, fertilisers, electricity, and iron.
• Emission Calculation:
• • Carbon content is determined based on direct emissions during production.
  • If the exporting country already levies a carbon price, this amount is deducted from the CBAM cost to prevent double taxation.

Impact of CBAM on India’s Trade

• Trade Disruptions: CBAM may significantly disrupt India’s exports to the EU, particularly in sectors like iron, steel, aluminium, cement, and fertilizers, which form a substantial share of India-EU trade.
• Higher Export Costs: Compliance with CBAM—including the purchase of carbon emission certificates—could raise production costs, reducing the global competitiveness of Indian industries.
• Iron and Steel Sector at Risk: With iron and steel comprising over 76% of India’s CBAM-affected exports, this sector is likely to face the most serious challenges related to compliance and added costs.

Why has CBAM been condemned by BRICS?

• Unilateral and Protectionist: It violates the principles of international trade law and the Paris Agreement, which protect developing nations from the adverse effects of climate policies imposed by richer countries.

• Ignores Climate Equity: The Paris Agreement allows for “common but differentiated responsibilities”, recognizing that rich countries have emitted more historically and must do more.
• Violates Multilateral Climate Cooperation: CBAM was introduced without global consensus.The BASIC group (Brazil, South Africa, India, China) has repeatedly warned that such measures erode trust and cooperation in global climate negotiations.

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