What is Carbon Border Adjustment Mechanism (CBAM)?

 

What is Carbon Border Adjustment Mechanism (CBAM)?

 

The European Union introduced a mechanism called Carbon Border Adjustment Mechanism (CBAM) to avoid "Carbon Leakage". 

 

What is Carbon Leakage?

 

·       The European Union aims to become a net zero emitter of greenhouse gases by 2050.

 

·       Accordingly, there are stringent climate policies in the European Union to be followed by European Industries.

 

·       To circumvent the same, companies based in the European Union sometimes shift the carbon intensive production abroad to countries where there are less stringent climate policies.

 

·       This phenomenon where the EU products get replaced by more carbon intensive imports, is known as Carbon Leakage.

 

 

What is Carbon Border Adjustment Mechanism (CBAM)?

 

·       In order to avoid Carbon Leakage, the European Union introduced Carbon Border Adjustment Mechanism (CBAM).

 

·       Carbon Border Adjustment Mechanism (CBAM) is a Carbon Tariff that will be imposed by the European Union on imports of carbon intensive goods from non EU countries.

 

·       The CBAM tariff to be imposed may range from 20% to 35% on imports of high carbon goods like Steel, Aluminum, Cement, Fertilizer, etc.

 

Impact of Carbon Border Adjustment Mechanism (CBAM) on India

 

·       It is estimated that exports worth nearly $8 billion from India to the European Union would face the Carbon tariff under Carbon Border Adjustment Mechanism (CBAM).

 

·       The most affected sectors in India may include Steel, Iron Ore and aluminium.

 

Date of Implementation 

 

·       Carbon Border Adjustment Mechanism (CBAM) officially started from 1st October 2023 which requires Carbon emissions reporting on imports. 

 

·       The actual levy of CBAM tariff is expected to start from 2026.

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