The European Union's controversial Carbon Border Adjustment Mechanism (CBAM), often called a carbon border tax, officially came into force on January 1. In response, New Delhi's Centre for Science and Environment (CSE) issued a strong warning on Saturday, stating that this policy unfairly transfers the financial burden of decarbonisation onto developing economies, including India.
What is CBAM and How Does It Impact Trade?
The CBAM is essentially a tool designed by the 27-nation EU bloc to impose a border tax on goods that are greenhouse gas (GHG) intensive. This tax targets the emissions generated during the production process of specific items like iron & steel, aluminium, cement, and fertilisers entering the EU market. The mechanism is projected to generate a significant 1.5 billion euros annually for EU nations by 2028, funds that critics argue will come at the expense of developing countries in the Global South.
The primary effect is a new tariff burden on such products exported from nations like India, directly impacting their trade competitiveness with the European Union. This unilateral measure has been met with prolonged resistance from India, China, South Africa, and several other countries.
Substantial Cost Pressures on Indian Exports
The CSE's detailed analysis highlights the direct implications for India. Key export sectors, particularly steel and aluminiumprice burden of around 25% due to CBAM.
To remain competitive in the crucial EU market, Indian exporters are likely to absorb this shock through price compression, squeezing their profit margins. "By putting a carbon price at the border, CBAM changes how competitiveness is defined in global trade," explained Sunita Narain, Director General of CSE.
Shifting the Decarbonisation Burden
Narain further elaborated on the broader inequity, stating, "What it also does is shift the decarbonisation costs to developing countries, thus extending a familiar dynamic where developing countries adapt to rules set elsewhere, under conditions that structurally disadvantage them."
While the CSE unequivocally agrees that industrial decarbonisation is both necessary and unavoidable, it criticises the approach. The think tank argues that developing nations will indeed need to pursue green transitions to stay competitive, but this shift cannot be driven solely by unilateral steps like CBAM imposed by developed economies.
The warning from the prominent Indian environmental think tank sets the stage for continued diplomatic and trade discussions as the full implications of the EU's carbon border tax begin to unfold for Indian industry.
