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’s Response to EU’s Carbon Tax (CBAM)

• 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 the Carbon Border Adjustment Mechanism (CBAM)?

• 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. 

News Source: The Hindu