We Delhi: Last week, India urged members of the G20 who had per capita greenhouse gas (GHG) emissions above the world average to reduce them to the world average, in order to make room for carbon for developing countries.
The statement comes at a time when the EU Commission is pushing the world’s first frontier carbon tax on imported goods such as carbon-intensive steel. The 27-nation bloc plans to collect the tax gradually from 2026. It is targeting non-EU companies exporting to Europe to pay the same price for their carbon footprint in Europe as European companies.
On Monday, China said the proposed tax would extend climate issues to trade and go against the international free trade system.
The Carbon Border Adjustment Mechanism (CBAM) is part of the EU’s new ambitious goals to curb climate change ahead of the 26th United Nations Climate Change Conference (COP26) in Glasgow later this year. year. In April, the EU pledged to reduce carbon emissions by at least 55% by 2030, compared to 1990 levels. Previously, the target was 40%.
ThePrint explains the border carbon tax and why countries, including India, oppose it.
Carbon rate and carbon border tax
A carbon border tax is a carbon tax that is levied on goods imported from countries with less stringent climate policies. It aims to create a level playing field between imports and domestic production.
The main goal of the EU’s proposed Carbon Border Adjustment Mechanism (CBAM) is to address the “carbon leak” when companies camp in places with cheaper pollution costs and looser climate regulations.
The carbon border tax is thought to run parallel to the price of carbon in domestic industries. About 40 countries have a carbon price within their own borders.
The price of carbon can take two forms: a traditional tax or a “limit and trade scheme”. Limit and trade systems, such as the EU Emissions Trading Scheme (ETS), impose a limit on the emissions of greenhouse gases (GHGs) that can be emitted each year, called ‘carbon credits’. . Low-emission industries can sell their additional rights to larger emitters. Meanwhile, a traditional tax directly sets a price on carbon, unlike an ETS in which the result of reducing emissions from a carbon tax is not predefined.
India has no price for carbon, although it has been implemented indirectly through mechanisms such as a coal cessation.
Also read: Why India should join the race towards zero net emissions
What is CBAM?
In December 2019, the European Commission introduced CBAM as part of the largest European Green Pact. September 16, 2020 became a legislative proposal, among other initiatives for 2021.
In March this year, the EU Parliament adopted a resolution to implement CBAM. The proposal has not yet been approved by the European Council and the European Parliament. The UK and US are also currently considering these proposals.
There have been concerns that the CBAM is inconsistent with World Trade Organization measures designed to prevent importing countries from discriminating against specific exporting countries.
Secondly, there are fears that this is the EU’s pandemic recovery plan.
Third, there has been a decline in local European industries, such as steel and fertilizers, which depend on imported materials that will now have to buy more carbon credits at rising prices.
How the carbon border tax works
Using the CBAM as a basis, importers of goods covered by a border tax will have to purchase certificates that cover emissions during the production of the goods. The price will reflect what the country’s own emissions trading system decides.
In a comment for NikkeiSpanish economist Alicia García-Herrero estimated that the carbon tax, with a price according to ETS, will be at least 50 euros per tonne by 2035.
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Why India opposes it
India, along with other developing countries, has long opposed the proposal for a carbon tax at the EU border. In April, he issued a joint statement with the BASIC bloc – Brazil, South Africa, India and China – calling the CBAM “discriminatory”. The concern is that the border tax will increase the prices of its products in Europe and reduce demand.
The BASIC group also said that the EU proposal goes against the United Nations principle of common but differentiated responsibilities and respective capabilities (CBDR-RC). The CBDR-RC recognizes that richer countries have a responsibility to provide financial and technological assistance to developing and vulnerable countries in the fight against climate change.
A border carbon tax is worrisome for India, as it is the EU’s third largest trading partner.
By 2020, the EU accounted for 11.1% of India’s total world trade. India’s exports to the EU were also worth $ 41.36 billion in 2020-21, according to data from the trade ministry.
The tax could “create serious short-term challenges for companies with a large footprint of greenhouse gases,” the BCG consulting group said in an analysis in June 2020.
He also said mechanisms such as the CBAM could lead to disruptions in a global trading system “already affected by tariff wars, renegotiated treaties and growing protectionism”.
(Edited by Neha Mahajan)
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