BRICS Condemned European Union’s CBAM

Syllabus: GS3/Environment, GS3/Economy

Context

• BRICS nations have “condemned and rejected” the Carbon Border Adjustment Mechanisms (CBAM) of the European Union (EU) and similar restrictive trade measures, saying they undermine their transition to a cleaner economy.

CBAM

• CBAM is an import duty imposed by the European Union (EU) on goods produced by processes that lead to more carbon emissions than domestic European manufacturers are allowed to emit. 
• It is introduced to put a “fair price” on carbon-intensive goods imported from non-EU countries. 
  • It is to create a level playing field with EU companies that account for their carbon emission through the bloc’s Emission Trading System (ETS).
• Application: To be imposed from January 1, 2026, on six items: steel, aluminium, cement, fertilizer, hydrogen, and electricity.

Concerns of Developing Nations

• Environmental Compliance: Discussions on CBAM are happening under the Trade and Technology Council (TTC), with India and developing nations arguing that environmental issues shouldn’t be tied to trade.
• Impact on Exports: The policy hurts the export competitiveness of developing countries such as China and India.
  • CBAM could affect 43% of India’s exports to the EU, including metals, textiles, chemicals, electronics, and vehicles.
  • CBAM could impose a 20-35% tax on specific imports like steel and aluminium.
  • India’s metal sector is most vulnerable, with exports worth over $8 billion at risk.
• Violation of International Agreements: The Paris Agreement adopted in 2015 protects developing countries from the social and economic impacts of “response measures” against climate change.
  • Dubai climate meeting (COP28) in 2023 acknowledged that “measures taken to combat climate change, including unilateral ones, should not constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade”.
• Benefits Developed World: Industries in developed economies with emissions standards comparable to the EU’s stand to benefit from a CBAM-like measure.
  • CBAM, therefore, can have the net effect of helping industries in the developed world, while putting those in developing countries at a disadvantage.

Way Ahead for India on CBAM

• Strengthen Global Negotiations through Alliances: India can actively collaborate with other developing countries, especially under platforms like the Trade and Technology Council (TTC), G77, and BASIC group, to push for a fair and equitable global carbon policy. 
• Build Domestic Carbon Competitiveness: Invest in green technologies, cleaner industrial processes, and carbon accounting mechanisms to align with global emission norms. 
• Establish a Carbon Market Framework: Developing a robust carbon market domestically, as India has already proposed, can help internalize carbon pricing and provide a benchmark that can be negotiated internationally.
• Sectoral Support for Affected Industries: Provide financial, technological, and policy support to vulnerable sectors such as steel, aluminium, and chemicals to help them reduce emissions intensity and comply with international standards.
• Develop a Counter-Policy Framework: India can consider formulating its own carbon border policy or tax incentives for green manufacturing, ensuring a level playing field domestically while signaling its readiness for fair environmental trade practices.
• Leverage EU–India Trade Talks: Use ongoing Free Trade Agreement (FTA) negotiations with the EU to seek exemptions, transitional arrangements, or mutual recognition mechanisms for Indian exporters under CBAM.

Source: IE