CHENNAI : The European Union disturbed the global level playing field last year by adopting a Carbon Border Adjustment Mechanism (CBAM), under which carbon-intensive goods such as iron, steel, cement, fertilisers and aluminum that are imported from various countries, including India, will be subject to an additional tax. The policy has since sparked a lot of debate and criticism.
The EU, however, says it is designed to ensure a domestic level playing field for local and global manufacturers. But critics see it as a protectionist measure designed to weaken the competitiveness of exports from developing countries. India, for whom the European Union is a key trading partner, has also raised its voice against the policy.
Now, a study has found that the proposed mechanism would impose an average tax burden of 25% over and above the value of CBAM-covered goods exported to the EU from India. As per the study by the Centre for Science and Environment (CSE), titled The Global South’s Response to a Changing Trade Regime in the Era of Climate Change, the losses accrued to India’s exporters would amount to 0.05% of the country’s GDP.
EU calls it a ‘fair price’
The European Union calls CBAM a tool to put a fair price on the carbon emitted during the production of goods entering the bloc. Producers within the European Union are subject to the bloc’s strict environmental standards that are designed to meet its climate objectives. This, however, adds to the cost of production. Therefore, the EU argues, when goods made in countries with less stringent standards enter the bloc, they would put domestic producers at a disadvantage.
“By confirming that a price has been paid for the embedded carbon emissions generated in the production of certain goods imported into the EU, the CBAM will ensure the carbon price of imports is equivalent to the carbon price of domestic production,” the European Commission said. Another stated aim is to protect the effectiveness of the bloc’s ambitious carbon reduction targets. With the EU imposing strict environment standards, there is always a risk that companies operating in the bloc may shift their production outside, to countries that have more relaxed norms. The EU says this will undermine its climate efforts. The CBAM is designed to make it less appealing for companies whose products are sold in the EU to shift their production out of the bloc’s jurisdiction.
Violates trade laws
Critics say the CBAM violates the Paris Agreement’s principle of “Common but Differentiated Responsibilities”.