Carbon Challenges: India’s Response to the EU’s Border Adjustment Mechanism
Context:
The European Union’s Carbon Border Adjustment Mechanism (CBAM) poses a significant challenge for India, with potential adverse effects on its manufacturing sector. The policy, set to tax carbon-intensive imports, has prompted discussions between the EU and India, raising concerns about its impact on the country’s industries.
Relevance:
GS-02, GS-03 (Conservation, Government Policies & Interventions, Bilateral Agreements)
Prelims:
EU, Carbon Trade, Carbon Emission, ETS, Green Energy, Decarbonization
Mains question:
Examine the challenges posed by the European Union’s Carbon Border Adjustment Mechanism (CBAM) for India, discussing potential strategies and the significance of aligning domestic carbon initiatives with global standards. (250 words)
Dimensions of the Article:
- Understanding CBAM
- Transitional and Definitive Phases
- India’s Carbon Trading Initiatives
- India’s Limited Options
- Broader Considerations
Understanding CBAM:
- The EU’s CBAM is a measure designed to achieve a 55% reduction in greenhouse gas emissions by 2030.
- It aims to prevent the replacement of EU products by carbon-intensive imports and maintain environmental compliance standards.
- The mechanism, similar to the EU’s Emission Trading System (ETS), intends to impose import duties on carbon-intensive industries from non-EU countries.
Transitional and Definitive Phases:
- The CBAM operates in two phases, starting with a transitional phase until December 2025, where reporting GHG emissions in imports is mandatory but without financial obligations.
- From January 1, 2026, the definitive phase begins, requiring importers to surrender CBAM certificates based on declared emissions.
- The calculation of carbon content in imports aligns with the EU-ETS mechanism.
India’s Carbon Trading Initiatives:
- India, responding to the global climate challenge, initiated its Carbon Credit Trading System (CCTS) in December 2022. The CCTS, coupled with the Green Credit Programme Rules, encourages emission reduction actions and environmentally proactive measures.
- While India is still working on operationalizing the CCTS, it faces the challenge of aligning its carbon trading mechanism with the impending CBAM.
India’s Limited Options:
- India, being among the countries most affected by CBAM, confronts challenges in navigating this framework.
- Options include challenging CBAM under the common but differentiated responsibilities principle and negotiating with the EU for fund returns.
- India has raised concerns at the World Trade Organization, emphasizing special and differential treatment provisions.
Broader Considerations:
- The EU’s focus on CBAM neglects other factors influencing the shift of EU industries, such as cheap labor and production opportunities elsewhere.
- The U.K.’s announcement of its own CBAM by 2027 adds urgency for India to formulate carbon taxation measures aligned with the Paris Agreement while safeguarding its industries.
Way Forward:
- India faces a critical juncture necessitating swift action to formulate carbon taxation measures and negotiate with the EU for pragmatic solutions.
- The ongoing discussions must address the potential impact on India’s key sectors like steel and explore avenues for mutual collaboration.
- Simultaneously, India’s efforts in implementing its carbon trading initiatives should align with global standards and principles.
