NEW DELHI: A New Delhi-based environmental think tank, the Centre for Science and Environment (CSE), has warned the European Union (EU) that imposing a carbon tax on developing countries like India will exacerbate climate inequities by shifting the burden of decarbonisation onto the Global South.
The EU's Carbon Border Adjustment Mechanism (CBAM) came into effect on January 1, taxing selected industrial goods exported to the EU. CBAM is a carbon tax that the EU impose on imported goods to protect the climate and its companies.
For countries like India, this has significant implications. Analysis indicates that CBAM could reduce the actual price of Indian steel and aluminium—mainly produced using coal—by 16 to 22%. Such shocks are likely to be mitigated through price compression in order to maintain competitiveness.
"By putting a carbon price at the border, the CBAM alters the definition of competitiveness in global trade. However, it also shifts the costs of decarbonisation to developing countries, perpetuating a familiar dynamic where these nations adapt to rules set elsewhere under conditions that structurally disadvantage them," said Sunita Narain, Director General of CSE.
Narain added, "Decarbonisation in industry is both necessary and unavoidable. Developing countries must pursue decarbonisation to remain competitive. However, this transition cannot be achieved solely through unilateral measures."
Concerns were raised in 2023 when the EU introduced the CBAM, as it does not address historical responsibilities or structural inequalities.
The CSE is advocating for equitable global climate action and emphasises the importance of providing real sectoral decarbonisation support, including concessional finance and technology transfer from the EU to developing country partners. "This can help reduce the carbon intensity of manufacturing, ensure a level playing field, and provide funds for Global South countries to invest in low-carbon growth," remarked another expert.
Over the past 15 months, CBAM has expanded its scope, evolving into an extensive trade obligation that places increasing demands on exporters for data provision and verification. Recent proposals aim to widen CBAM’s scope to additional sectors, tighten verification requirements, and introduce anti-circumvention provisions, thereby escalating compliance and cost pressures on exporters from the Global South.
CSE has suggested that measures should include ensuring that funds from the carbon tax remain within borders, along with the EU providing additional climate finance for decarbonisation. A comprehensive package of measures could include recycling CBAM revenues to developing country partners, supporting the monitoring and reporting of emissions, and granting exemptions for least developed countries.
