Context
The United States has initiated a probe into the European Union’s Carbon Border Adjustment Mechanism (CBAM), raising concerns about its impact on American small businesses. Any relaxation of CBAM rules could benefit Indian exporters, particularly in the iron, steel and aluminium sectors.
Explanation
- Carbon Border Adjustment Mechanism (CBAM) is the European Union’s carbon pricing system for certain imported goods, aimed at preventing carbon leakage.
- Carbon leakage occurs when industries shift production to countries with weaker climate regulations to avoid carbon costs.
- CBAM initially covers six sectors: iron and steel, aluminium, cement, fertilisers, electricity and hydrogen.
- Under CBAM, EU importers must declare the embedded emissions (greenhouse gases released during production) of imported goods.
- During its definitive phase, CBAM requires importers to purchase certificates reflecting the carbon price applicable to those emissions, subject to applicable adjustments.
- India’s concern: Carbon-intensive exports, particularly steel and aluminium, could face higher costs and reduced competitiveness in the EU market.
- US intervention: Pressure for more flexible CBAM rules could reduce compliance burdens and potentially benefit Indian exporters.
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