With the COP27 in Sharm El Sheikh (Egypt) reaching its conclusion, a group of countries, including India, has stressed that carbon border taxes, which could cause market distortion and exacerbate the trust deficit among parties, must be avoided.

 

Details

  • BASIC (Brazil, India, South Africa and China), a group of large nations that rely heavily on coal, has for several years expressed common concerns and reiterated their right to use fossil fuels while their countries transition to clean energy sources.
  • Their joint statement at COP27 expressed “grave concern” that developed countries had backtracked on finance and mitigation commitments and pledges and they have further increased the consumption and production of fossil fuels.
  • Adaptation is still not receiving the fair and substantial attention it deserved in the United Nations climate framework process, despite the opportunities and linkages with “loss and damage.” Loss and damage refer to a demand by developing countries for an institutional mechanism to finance countries affected by climate change for existing environmental damage.
  • These developed countries continue to press developing countries to move away from the same resources. Such double standards are incompatible with climate equity and justice.
  • Unilateral actions and discriminatory practices, such as carbon border taxes, must be avoided since they could cause market distortion and exacerbate the trust deficit among signatory countries to United Nations climate agreements.
  • BASIC countries demand that developing countries respond in unison to any unfair shifting of responsibilities from developed to developing countries.

 

Background

In 2021, the European Union (EU) proposed the Carbon Border Adjustment Mechanism (CBAM), which would tax very carbon-intensive items such as cement and steel beginning in 2026.

 

About

  • A carbon border adjustment tax is a duty on imports based on the amount of carbon emissions resulting from the production of the product in question.
  • As a price on carbon, it discourages emissions and as a trade-related measure, it affects production and exports.
  • If created unilaterally, it is likely to be viewed as unfair by trading partners since it runs the possibility of unfairly protecting local industries from foreign competition in so-called ‘green protectionism.’

 

How does it work?

  • If implemented as intended, EU importers will be required to purchase carbon certificates equal to the carbon price paid in the EU if the items had been manufactured locally.
  • The certificates’ price would be determined by the auction prices in the EU carbon credit market.
  • The number of certificates required would be determined yearly by the quantity of commodities imported into the EU and the embedded emissions in those goods.
  • The CBAM would first apply to cement, iron and steel, aluminium, fertilisers and electricity imports.

 

Concerns

  • The US, China, India, Brazil, South Africa and several others, including least-developed countries, have expressed concern over –
  • How to fairly account for emissions related to the production of imported goods?
  • How to duly consider the costs that companies already face in complying with climate regulations in exporting countries?