The European Union’s (EU) key climate law, the Carbon Border Adjustment Mechanism (CBAM), has spooked India. New Delhi fears that CBAM will cripple the export of its carbon-intensive products to the EU. While India’s exports may be limited to aluminium, iron, and steel, and affect only 1.8% of its total exports to the EU, India has reportedly decried CBAM as being protectionist and discriminatory. There is also talk of challenging the CBAM at the World Trade Organization (WTO)’s dispute settlement body. This debate brings to the forefront the inter-linkages between trade and the environment. While the international trade regime allows countries to adopt unilateral measures for safeguarding the environment, environmental protection should not become a smokescreen for trade protectionism. The CBAM needs to be viewed from this standpoint.
About CBAM
In 2005, the EU adopted an important climate change policy known as the Emissions Trading System (ETS). Now in its fourth stage, the ETS is a market-based mechanism that aims at reducing greenhouse gas (GHG) emissions by allowing bodies emitting GHG to buy and sell these emissions amongst themselves. However, the EU’s concern is that while it has a mechanism for its domestic industries, emissions embedded in products imported from other countries may not be priced in a similar way due to a lack of stringent policies or due to less stringent policies in those countries. This, the EU worries, would put its industries at a disadvantage. To tackle this, the impacted industries in the EU had so far been receiving free allowances or permits under the ETS. Furthermore, the EU also apprehends the phenomenon of ‘carbon leakage’, that is, due to the application of ETS, European firms operating in carbon-intensive sectors might possibly shift to those countries that have less stringent GHG emission norms.
