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Carbon Border Adjustment Mechanism (CBAM) - Coggle Diagram
Carbon Border Adjustment Mechanism (CBAM)
Central Idea
It seeks to tax products such as cement and steel that are extremely carbon intensive, with effect from 2026
India has proposed to counter it by imposing its own carbon tax.
EU has proposed a policy — called the Carbon Border Adjustment Mechanism
What is Carbon Border Tax?
It is part of the European Commission’s European Green Deal that endeavours to make Europe the first climate-neutral continent by 2050.
Aim-
To ‘incentivize’ greener manufacturing around the world and create parity with European manufacturers who are already subjected to substantial carbon levies.
CBT is a tax on carbon emissions attributed to imported goods that have not been carbon-taxed at source
Political implications
So it will have to pay an additional layer of carbon border tax
China produces steel with blast furnaces that release a large amount of carbon
This will consequently reduce the competitiveness of steel produced in China
China’s continuing reliance on non-renewable energy to power its economy leaves it particularly vulnerable in this matter
How does this impact India?
It covers energy-intensive sectors such as cement, steel, aluminium
By increasing the prices of Indian-made goods in the EU, this tax would make Indian goods less attractive
India’s exports to the EU were worth $41.36 billion in 2020-21
Sadly, India’s many ‘self-reliance’ tariffs are also a contributor to this.
EU accounted for $74.5 bn worth of trade in goods in 2020, or 11.1% of India’s total global trade
Issues with CBT
Promoting protectionism
Unfair practices under WTO
Altering competitiveness
A violation of Paris Accord
Impact on trade
Way forward
This should take all nations into confidence than imposing such overnight tariffs.
Fundamental changes can’t be forced by tariffs.
It is no doubt that India must be in the forefront in climate politics.
It is just one way of holding large emitters accountable for their role in harming the environment.