Context: The European Union plans to include 180 additional products under its Carbon Border Adjustment Mechanism from 2028, which may raise carbon-related costs on exports from countries like India.
Carbon Border Adjustment Mechanism (CBAM):
- CBAM is a policy of the European Union that puts a carbon cost on imports (like steel, cement, aluminium) based on how much carbon was emitted during their production, to prevent “carbon leakage” and protect its climate goals.
- Example: If Indian steel is produced using coal-intensive methods, the EU may impose an additional carbon charge on that steel when it is exported to Europe, making it costlier.
- Carbon leakage occurs when industries shift production to countries with lax emission norms to avoid strict regulations.
- CBAM initially covers sectors like steel, cement, aluminium, fertilisers, electricity, and hydrogen.
- It aligns with the EU Emissions Trading System (ETS), where domestic industries pay for carbon emissions.
- The CBAM transition phase runs from 2023 to 2025, with full implementation expected from 2026 onwards.
- Expansion to more products is proposed by the European Commission and supported by the European Parliament committees.
- CBAM may act like a carbon tax on imports, affecting export competitiveness of developing countries.
- India’s exports, especially in energy-intensive sectors, may face higher compliance costs and reporting requirements.
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