India to use own carbon levy to counter EU’s CBAM

  • June 19, 2023
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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India to use own carbon levy to counter EU’s CBAM

Subject :Environment

Section: Climate change

Key Points:

  • India is likely to set up a framework for carbon border tax to counter the European Union (EU)’s carbon border adjustment mechanism (CBAM).
    • India is focusing on developing its own carbon pricing system and pushing for its recognition globally so as to avoid a default value put on Indian exports. The Energy Conservation (Amendment) Act, 2022, passed by Parliament last year, seeks to empower the central government to specify a carbon credit trading scheme.
    • Finance and commerce ministries are discussing the basics of such a mechanism, particularly about measuring the carbon content in products imported from Europe.
  • The EU’s carbon border adjustment mechanism (CBAM) is just a customs duty by another name. On similar lines India is also free to impose a tax on imports taking into account historic carbon emissions by them.
  • Similar legislation is increasingly being considered by several developed nations such as Japan, the UK and the US.
  • Arguments against CBAM:
    • CBAM can be seen as a “non-tariff barrier”, which is illegal according to WTO, unlike ‘non-tariff measures such as anti-dumping action, which are seen as barriers but are allowed by WTO.
    • CBAM breaches the basic principle of international environmental law of common but differentiated responsibilities (CBDR) that suggests that all states are responsible for addressing global environmental destruction, but they are not equally responsible and that there is a need to recognize the wide differences in levels of economic development between states and their contribution in battling climate change.
    • The linking of environment and trade has the potential to distort global trade, and it implies that certain countries are pollution havens based on one entity’s domestic standards and legislation. Also, World Trade Organization (WTO) rules do not explicitly link the environment with global trade.
EU’s carbon tax

  • The system is based on domestic emission standards and requires a payment for exceeding those standards.
  • This system will undergo a global transition phase starting in October and will be fully effective from January 2026.
  • Initially, the tax will apply to industries such as: cement, iron and steel, aluminium, fertilizers, electricity, hydrogen, and their precursors. Concerns have been raised that this list may expand in the future, potentially affecting developing countries like India.
  • Importers into the EU will be required to report the quantity of their annual imports and the associated greenhouse gas emissions and will need to surrender a corresponding number of CBAM (Carbon Border Adjustment Mechanism) certificates, which will be available for purchase at a determined price.
  • This price will be calculated based on the weekly average auction price of the EU’s emission allowances. These allowances represent the right to emit a specific amount of carbon under the EU’s Emission Trading System and are expressed in euros per tonne of carbon.
  • India sought exemption for its small businesses from the EU’s carbon tax.
Environment India to use own carbon levy to counter EU’s CBAM