Carbon Border Adjustment Mechanism

The European Union (EU) has announced that its Carbon Border Adjustment Mechanism (CBAM) will be introduced.

Carbon Border Adjustment Mechanism

• It is a tool to put a fair price on the carbon emitted during the production of carbon intensive goods that are entering the EU, and to encourage cleaner industrial production in non-EU countries. 
• is part of the “Fit for 55 in 2030 package”, which is the EU’s plan to reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels in line with the European Climate Law.

Fit for 55 in 2030

• The European Commission adopted the Fit for 55 Package of proposals. It aims to make the EU’s climate, energy, land use, transportation, and taxation policies fit for lowering greenhouse gas emissions by 55% by 2030 (relative to 1990 levels).
• It also includes a major overhaul of the Emissions Trading System (ETS) where pollutingindustries can purchase carbon credits to offset their carbon emissions.

Criticism of the Amendment

• Tax experts said given the onerous compliance, and low conviction rate under the law, the nclusion of CAs, CS, and CWAs, was uncalled for.
• Concerns amongst financial professionals that they could possibly not just face penalty for non-compliance but could also have potential run-ins with investigative agencies like ED.

Significance

• It can encourage non-EU countries to adopt more stringent environmental regulations, which would reduce global carbon emissions.
• It can prevent carbon leakage by discouraging companies from relocating to countries with weaker environmental regulations.
• India’s exports of metals such as Iron, Steel and aluminum products to the EU which will be impacted by it.

Way Forward

• The government has schemes like National Steel Policy, and the Production Linked Incentive (PLI) scheme aims to increase India’s production capacity, but carbon efficiency has been out of the objectives of such schemes.
• Negotiation with EU for Tax Reduction
• Transfer of Clean Technologies
• Incentivizing Greener Production

Practice Questions for Prelims

Consider the following statements regarding CBAM [carbon border adjustment mechanism]
1. It will impose a border fee on imports in carbon-intensive sectors from nations with lower environmental standards
2. Recently the European Commission’s Fit To 55 Package introduces this CBAM

Which of the above statements is/are correct?
a) 1 only
b) 2 only
c) Both 1 and 2
d) Neither 1 nor 2

Ans. c)

 

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