By RV Anuradha
A total of 193 countries have reported nationally determined contributions (NDCs) under the Paris Agreement to the United Nations Framework Convention on Climate Change (UNFCCC). These include members of the European Union, the United Kingdom, and India. NDCs are based on the UNFCCC’s principle of “common but differentiated responsibilities and respective capabilities” (CBDR-RC). This is clear from the UNFCCC recognition that developed countries are responsible for “the largest share of historical and current global greenhouse gas emissions,” and that “the share of global emissions from developing countries will increase.” to meet their social and development needs “. Developed countries also had a responsibility to transfer technology and financial resources to enable developing countries to take a greener path to development. However, initial experience with the implementation of UNFCCC obligations, including the CDR-RC principle, has not been effective. The US refused to ratify the 1997 Kyoto Protocol to the UNFCCC, Canada withdrew in 2012 and many countries refused to make commitments beyond 2012. The 2015 Paris Agreement anchored in the NDC by each country, it was the commitment that was reached, with more awareness. of the obvious and current danger posed by climate change.
NDCs are based on emission reductions across the economy: a country has the sovereign discretion to determine how to distribute responsibility for reductions across various sectors. In an ideal world, each country would play its part, adhere to NDC commitments, and allow the transfer of finance and technology to achieve green growth. Unfortunately, this ideal world does not exist. As widely reported, the promise of developed countries to provide $ 100,000 billion a year in climate finance by 2020 to developing countries remains unfulfilled. Added to this is the EU’s proposed implementation of a carbon border adjustment mechanism (CBAM), a unilateral charge for imports from countries with climate policies other than the EU’s. EU. The UK is likely to follow suit soon with a recent indication from the UK Parliament’s Environmental Audit Committee to apply a similar measure. Canada and the United States are also considering these measures. At the heart of these efforts is the equalization of differences in climate policy through unilateral trade measures. These measures are therefore a mockery of the rationale and principles of internationally agreed climate action.
The EU argues that in the absence of its international partners sharing the same level of climate ambition, there is a risk of carbon leakage, resulting from the relocation of EU industry to countries with lower emissions targets. From 1 January 2023, the EU CBAM requires that imports into the EU in five sectors (iron and steel, aluminum, fertilizers, cement and electricity) must meet the requirements for detailed reports on emissions related to the manufacture of their products. This “reporting only” transition phase would be extended until 31 December 2025. From 1 January 2026, imports into the EU in all five sectors must be accompanied by CBAM certificates corresponding to verified emissions.
The CBAM is, in a nutshell, a mandate that a country that wants to export to the EU should replicate the EU’s requirements for reducing emissions and the price of carbon as determined. The price of CBAM Certificates will reflect the average weekly price of the EU Emissions Trading System (EU-ETS) auctions. CBAM’s annual revenue is expected to reach € 2.1 billion by 2030. It is likely to be deployed towards CBAM’s administrative and other related costs. There are no plans to return the amounts raised as climate finance to developing countries. During the formative stages of its CBAM proposal, a legal assessment carried out for the EU Parliament in 2020 had suggested that the EU could consider an exemption for imports from countries that are party to the Paris Agreement. However, the EU chose to ignore the simple way in which its measure could have adhered to the principles of equity and climate justice. Apart from the immediate impact on the five target sectors, carbon boundary measures will have a dominant effect on the entire supply chain in downstream products, and especially in MSMEs in both developed and developing countries. The sectoral scope is also expected to be expanded to include paper, glass and chemicals. Seen through the lens of international trade law, a CBAM that discriminates between similar products based on emissions in the production process is unlikely to stand the test of compatibility with World Trade Organization (WTO) standards. It may also be difficult for the EU to justify the CBAM as an environmental exception to WTO rules, due to its lack of alignment with internationally agreed UNRC differential emission reduction commitments.
However, the WTO dispute settlement system with a non-functional appeal body offers little hope for a real or timely resolution of the issue. Unilateral tariff measures imposed by the US on steel and aluminum imports in 2018, and subsequent retaliatory measures imposed by affected countries (including India) against certain US imports are still pending adjudication at the WTO . A similar result with regard to the EU CBAM will only increase trade frictions and will not contribute to a greener planet. The only realistic option is for countries to resolve this at the UNFCCC and accept that unilateral trade measures cannot undermine the NDCs. The WTO Director-General has warned of the risks of unilateral measures and suggested that countries work to fix carbon prices in line with the Paris Agreement. Any alignment with the Paris Agreement would mean that there can be no global common price, and countries would necessarily have to recognize the differential carbon prices linked to the NDCs. With the clock of climate change, timely action to prevent it is crucial, rather than wasting time and resources with useless unilateral measures and countermeasures at borders.
The author is a partner, Clarus Law Associates, New Delhi