India, other BASIC nations oppose Carbon Border Adjustment Mechanism

• India, Brazil, South Africa and China have voiced their opposition to the European Union’s ‘Carbon Border Adjustment Mechanism’ (CBAM).

• Ministers of Brazil, South Africa, India and China representing the BASIC Group met at the 27th Conference of Parties (COP27) to the United Nations Framework Convention on Climate Change (COP 27) in Sharm el-Sheikh.

• Unilateral measures and discriminatory practices, such as carbon border taxes, that could result in market distortion and aggravate the trust deficit amongst Parties, must be avoided, the group said in a statement.

• BASIC is a bloc of four countries — Brazil, South Africa, India and China — formed by an agreement on November 28, 2009. The four committed to act jointly at the Copenhagen Climate Summit.

Carbon Border Adjustment Mechanism

• The European Commission (EC) has proposed the Carbon Border Adjustment Mechanism (CBAM) regulation in July 2021, which is one of the key elements of the European Union’s ‘Fit for 55’ package.

• The main objective of this environmental measure is to avoid carbon leakage.

• The term ‘carbon leakage’ refers to the effect in which carbon prices drive up relative costs and reduce the relative competitiveness of EU firms such that their output falls. Some of the output transfers to overseas producers with the rest accounted for by reduced domestic consumption, which leads to changes in carbon dioxide emissions both within and outside the EU. Carbon leakage refers to the increase in emissions resulting from the relocation of production. 

• A carbon border adjustment tax is a duty on imports based on the amount of carbon emissions resulting from the production of the product 

• CBAM targets imports of carbon-intensive products, in full compliance with international trade rules, to prevent offsetting the EU’s greenhouse gas emissions reduction efforts through imports of products manufactured in non-EU countries, where climate change policies are less ambitious than in the European Union. 

• It will also prevent the relocation of the production or the import of carbon-intensive products.

• The proposed CBAM would initially apply to five sectors: electricity, iron and steel, fertilisers, aluminium and cement. These sectors have a high risk of carbon leakage and high carbon emissions. However, its scope could be extended to include indirect emissions and other goods and services.

• The additional charges on imports based on the emission intensity of production processes could affect the export competitiveness of several countries in the Asia-Pacific region, with consequences for development.

• Carbon Border Adjustment Mechanisms are already in place in some regions around the world, such as California, where an adjustment is applied to certain imports of electricity. A number of countries such as Canada and Japan are planning similar initiatives. In addition, the IMF and the OECD have recently carried out work to study how such measures could support international efforts to reduce greenhouse gas emissions. 

How will CBAM work?

• EU importers  will buy carbon certificates corresponding to the carbon price that would have been paid, had the goods been produced under the EU’s carbon pricing rules. Conversely, once a non-EU producer can show that they have already paid a price for the carbon used in the production of the imported goods in a third country, the corresponding cost can be fully deducted for the EU importer.

• The price of the certificates will be calculated depending on the weekly average auction price of EU’s Emissions Trading System (ETS) allowances expressed in euro/tonne of CO2 emitted.

• Importers of the goods will have to, either individually or through a representative, register with national authorities where they can also buy CBAM certificates.

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