New Delhi: Last week, Indian Environment Minister Prakash Javadekar opposed the European Union (EU) plan to impose an additional “carbon border tax” on imports from countries such as India that do not have strict rules to control industrial greenhouse gas (GHG) emissions .
Earlier, on 10 March 2021, the EU Parliament had adopted a resolution to implement a “Carbon Border Adjusted Mechanism” (CBAM), June 2021 draft regulation on which he proposed that goods entering the EU be taxed at the borders. Such a tax would promote “low-carbon, resource-efficient manufacturing,” the resolution says. He UK and the WE they are also considering these proposals.
The grouping of BASIC countries (Brazil, South Africa, India and China) had opposed the EU proposal in a joint statement in April, calling it “discriminatory” and contrary to the principles of equity and “common but differentiated responsibilities and respective capabilities” (CBDR-RC). These principles recognize that richer countries have a responsibility to provide financial and technological assistance to developing and vulnerable countries in the fight against climate change.
Why does the EU want a carbon tax?
For two reasons: its environmental goals and the global competitiveness of its industries, experts tell us.
The EU recently stated that it would reduce its carbon emissions by at least 55% by 2030 compared to 1990 levels. EU greenhouse gas emissions have fallen per 24% compared to 1990 levels.
But imports from emissions, which contribute 20% of EU carbon dioxide emissions – are rising, according to the resolution. This carbon tax would encourage other countries to reduce GHG emissions and further reduce the EU’s carbon footprint.
Second, the 27 EU member states have much stricter laws to control GHG emissions. He has a ‘Emissions trading system‘which limits the amount of GHGs that individual industrial units can emit; those who fail to limit their emissions can buy “bonuses” from those who have made deeper cuts.
This makes operating within the EU expensive for certain companies, who, feared by EU authorities, may prefer to move to countries with more relaxed or no emission limits. This is known as carbon leakageand increases total emissions to the world.
How does this affect India?
As the third largest trading partner in India, the EU represented 62,800 million euros ($ 74.5 billion) of trade in goods by 2020, or 11.1% of India’s total global trade. India’s exports to the EU were worth $ 41.36 billion in 2020-21, according to data from the ministry of commerce.
March of the EU resolution stated that, initially, by 2023, the CBAM would cover energy-intensive sectors such as cement, steel, aluminum, oil refinery, paper, glass, chemicals and the electricity sector.
By raising the prices of Indian-made products in the EU, this tax would make Indian goods less attractive to buyers and could reduce demand. The tax “would create serious short-term challenges for companies with a large footprint of greenhouse gases and a new source of disruption to a global trading system that is already plagued by tariff wars, renegotiated treaties and growing protectionism “BCG consultancy told a analysis on June 30, 2020.
BCG estimated, for example, that a rate of $ 30 per metric tonne of CO2 emissions could reduce the overall profits of foreign producers by 20% if the price of crude oil remained between $ 30 and $ 40 per barrel.
Could it work?
This mechanism for collecting goods imported at the borders can stimulate the adoption of cleaner technologies. But if it goes without proper assistance for new technologies and funding, it would mean taxing developing countries, said Sanjay Vashist, Delhi-based director. Climate Action Network in South Asia, a coalition of 200 civil society organizations.
“It is currently unclear how the EU would assess emissions from an imported product. Would it be from the entire value chain, upstream and downstream?” question Nitya Nandadirector of the Social Development Council, a Delhi-based research and defense company. “There are many small businesses that will face difficulties in quantifying their emissions, and ultimately the additional costs will be passed on to consumers. There are many such practical impediments.”
In the draft proposal, the EU has acknowledged a number of challenges in assessing emissions along global value chains and the potential impact of taxes on consumers. It suggests a fixed duty or import tax.
The design of this fee is important, Nanda stressed. If it discourages sectors and industries that are already adopting cleaner technologies and becomes another procedural and compliance issue, it could be counterproductive.
Instead, climate advocates say richer countries need to live up to their promises of technological and financial assistance to enable developing countries to make the transition to low-carbon growth pathways. There is disagreement over whether developed countries have maintained their climate finance commitments with conflicting claims from countries, according to this 2021 editorial published in the newspaper Nature.
The Organization for Economic Development, whose members are mostly developed countries, claims that developed countries had mobilized $ 78.9 billion of the $ 100 billion projected in 2018, but a report for the development organization Oxfam said that amount did not exceed 22.5 billion dollars, according to the publisher. Investigation commissioned by UN Secretary-General Antonio Guterres Found that there was an oversupply of climate finance reports between $ 3 billion and $ 4 billion, indicating the scale of opacity in the presentation of this data, the editorial added.
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