How India could counter the Carbon Border Adjustment Mechanism

The European Union’s Carbon Border Adjustment Mechanism (EU-CBAM) has sparked significant concern, especially from India, regarding its potential negative impact on developing countries’ international trade. The mechanism aims to impose carbon costs on imported goods, which may disproportionately affect India’s exports. This issue is currently being discussed at COP29 in Baku, with India strongly criticizing the EU's approach as "discriminatory."

EU-CBAM Overview and Implications

• Carbon Tax on Imports: The EU-CBAM mandates that imports to the EU reflect the carbon emission costs borne by domestic products, requiring exporters to buy certificates to match emissions.
• Impact on Indian Exports: India’s exports to the EU, particularly iron and steel, are at risk, as 25.7% of these exports are impacted by CBAM, threatening India’s significant trade relationship with the EU.
• India’s Criticism: India has called CBAM "discriminatory" and argues that it unjustly shifts the responsibility of emission reductions to developing countries, thereby hindering fair trade practices.

Developing World’s Diverse Perspectives on CBAM

• Complex Perceptions: Not all developing nations share India's concerns, as their economic aspirations and vulnerability to climate change vary, influencing their stance on CBAM.
• Export-Driven Emissions: Developing countries are often held responsible for emissions from goods exported, even though these products are not consumed domestically, raising fairness concerns.
• Trade and Cultural Ties: Bilateral and multilateral relations influence the way developing nations respond to CBAM, complicating the issue of coordinated resistance against it.

India’s Arguments and Alternative Proposals 

• Preparation Time: India questions whether the EU's CBAM allows developing economies adequate time to adapt to emission reduction standards, noting that the EU's own targets were set over a long timeframe.
• Revenue Sharing: India challenges the EU’s decision to keep the revenues generated from CBAM, arguing that this money should be shared with non-EU trading partners to support capacity building and technology transfer.
• Equity-Based Accounting (EBA): India proposes an alternative approach to emission reduction responsibilities based on Equity-Based Accounting, which considers per capita GDP, emissions, and trade impacts, aiming for a fairer distribution of emission reduction duties among trade partners.

Practice Question

Q. Critically analyze the implications of the European Union’s Carbon Border Adjustment Mechanism (CBAM) for developing economies, particularly India. How can India’s stance and proposed alternatives contribute to a more equitable approach to climate responsibilities?