What is carbon border tax, which India opposed at COP27
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What is carbon border tax, which India opposed at COP27
Subject: Environment
Context-
- A group of countries including India has opposed the carbon border taxes policy at the COP27 in Sharm El Sheikh, saying it could “result in market distortion”.
Carbon Border Adjustment mechanism (CBAM)-
- The Carbon Border Adjustment Mechanism is a plan from the European Union (EU) to tax carbon-intensive products, such as iron and steel, cement, fertiliser, aluminium and electricity generation, from 2026.
- The CBAM will equalise the price of carbon between domestic products and imports and ensure that the EU’s climate objectives are not undermined by production relocating to countries with less ambitious policies.
What are carbon border taxes-
- The carbon border tax involves imposing an import duty on a product manufactured in a country with more lax climate rules than the one buying it.
‘Carbon leakage’: Why need for tax was felt
- Some developed nations, in efforts to cut emissions, impose high costs on carbon-intensive businesses in their own countries.
- Businesses can potentially sidestep this simply by moving production to a country with less stringent rules, a practice called carbon leakage.
- Companies based in the EU could move carbon-intensive production abroad to take advantage of lax standards, or EU products could be replaced by more carbon-intensive imports.
