The European Union (EU) has put through an ambitious policy initiative: the Carbon Border Adjustment Mechanism (CBAM). The result is bound to cause much ado because of the potential negative impact, especially on developing economies like India and China.
It would charge a fee on all imported products equivalent to the carbon emissions that are created in their production, like what is charged on domestic production. There are two ways in which CBAM aims at reducing the carbon footprint of foreign products: by diminishing the carbon footprint of imported products and making things even for EU industries that meet green standards. The key sectors targeted then are the energy-intensive industries: steel, cement, and aluminum. Critical to activities circling the economy of the globe, they are also major contributors to greenhouse gas emissions.
The move by the EU has been noticed by several international forums, the latest being the United Nations climate conference, where most developing nations raised eyebrows. Their concern is that CBAM just might slam heavier on their economies through costs, with the speculation associated with risks of lost access to the EU market, which is so relevant for most of the world’s economies.
It is not long before New Delhi itself saw discussions being led by Gerassimos Thomas, Director-General of the European Commission, to make Indian government officials and business leaders aware of the implications of CBAM. The discussions reiterated mutual interests in decarbonization and showcased, on the part of the EU and the way forward for India, commitments by the EU to collaborate with India on economic sustainability. CBAM, as foreseen by Thomas, will be a non-discriminatory tool that will have a gradual phase-in to be predictable for investors and businesses.
While recognizing the commitment of the EU to decarbonizing its economy, India has seriously expressed concerns about the potential adverse impact of CBAM on its industries, particularly its MSMEs. Technical meetings have been taking place to discuss provisions on transition periods while ensuring multiple channels of feedback from stakeholders, including further steps toward transparency and inclusiveness in policy design.
The Talks went past CBAM and provided background cooperation along with broader areas of cooperation dealing with the aspects regarding energy efficiency, renewable energy, and carbon trading markets between the EU and India. Both the parties expressed their desire to “reinvigorate comprehensive ties, including in customs cooperation within the ambit of extant agreements and from ongoing negotiations on a bilateral Free Trade Agreement.” Even issues such as cross-border e-trade, as well as digital economies relating to aspects of tax and making it voice under the present scenario, were also included within the ambit of dialogues within comprehensive sustainable economic relations.
Moving forward, the EU is set to provide reports on the progress assessed in implementing CBAM to stakeholders, asking for even more input and collaboration from global partners, like India. These reports are to result in truly important basic directions of future policies aimed at making CBAM not only an environmental success but one that works towards green, inclusive economic growth and international cooperation against climate change.
In a nutshell, while the EU’s Carbon Border Adjustment Mechanism is certainly a big step towards global decarbonization, care must be taken concerning its larger economic and diplomatic implications. This could be the only way for the European Union India and any other actors to engage in collaboration and a timely dialogue to confront the challenges ahead in constructing a sustainable future for world trade.
Putting on the EU and its Carbon Border Adjustment Mechanism means shining a light on global trade, and sustainability, and working together to be responsible environmental stewards with our economic resilience.