Green crosshairs

May 10, 2023

Context:

The European Union (EU) proposes to introduce a framework for levying a carbon tax on imports of products that rely on non-green or sub-optimally sustainable processes and where carbon emissions are deemed to have not been adequately priced.

A multi-pronged counter is warranted to tackle the EU’s carbon tax plans.

Carbon Border Adjustment Mechanism (CBAM):

Beginning: CBAM will begin with an import monitoring mechanism and culminate in the levy of duties as determined from January 2026.
Ensuring Climate Objective: The EU argues that the CBAM will ensure its climate objectives are not undermined by carbon-intensive imports and spur cleaner production in the rest of the world.
Significant Threat: To some of India’s biggest exports to the trading bloc, including iron ore and steel, with carbon levies estimated to range from 19.8% to 52.7%.

India-EU Export Scenario:

Last year, about a third of India’s iron, steel and aluminium exports were shipped to EU members.
Engineering products, the largest export growth driver in recent years.

Transition needs Time:

Larger players across sectors are gradually turning to greener technologies, but the transition needs time — even more so for smaller businesses — to move away from legacy carbon-heavy technologies.

Enforcement:

The EU believes the carbon tax is compatible with World Trade Organization norms, but India is looking to challenge that.
It may also flag the incompatibility with the UN’s climate change framework which moots common but differentiated responsibilities for developed and developing nations.
But even if these arguments are upheld, these two avenues lack enforcement options.

Need of the Hour:

A threat of retaliatory tariffs on EU imports is also being weighed even as plans are afoot to quantify the various carbon taxes levied in India.
Having positioned itself as the voice of the global South, India must play that part to the hilt while at the helm of the G-20 this year and galvanise other nations to take on the EU’s carbon tax framework.
This championing need not revolve around its own concerns, but the far worse implications the CBAM entails for poorer countries, many of whom rely more heavily on mineral resources than India does.

News Source: The Hindu