Green crosshairs – A multi-pronged counter is warranted to tackle the EU’s carbon tax plans

Source: The post is based on the article “Green crosshairs – A multi-pronged counter is warranted to tackle the EU’s carbon tax plans” published in The Hindu on 10th May 2023.

Syllabus: GS 2 – Effect of policies and politics of developed and developing countries on India’s interests.

Relevance: About Carbon Border Adjustment Mechanism of EU.

News: The European Union (EU) proposes to introduce a Carbon Border Adjustment Mechanism (CBAM) in the upcoming October. The carbon levies are estimated to be in the range from 19.8% to 52.7

What is Carbon Border Adjustment Mechanism (CBAM) and Why it is a cause of worry for India?

According to EU, the CBAM will ensure its climate objectives are not undermined by carbon-intensive imports and spur cleaner production in the rest of the world.

Last year, about a third of India’s iron, steel and aluminium exports were shipped to EU members.  Engineering products are the largest export growth driver in recent years. So, the CBAM will impact Indian exports to Europe.

What are India’s options against the CBAM?

The Centre view the tax as a sophisticated trade barrier put out within ‘greenwashing’ optics.

-The EU believes the carbon tax is compatible with World Trade Organization norms, but India is looking to challenge that.

-India may also flag the incompatibility with the UN’s climate change framework which moots common but differentiated responsibilities for developed and developing nations.

-A threat of retaliatory tariffs on EU imports might also be feasible.

What India should do against the CBAM?

India at present is planning to quantify the various carbon taxes levied in India. Many of the poorer countries rely more heavily on mineral resources than India does.

Having positioned itself as the voice of the global South, the current president of G20, India should explore all the options against the CBAM and also alarm other nations about the EU’s carbon tax framework.