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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