Carbon Border Adjustment Mechanism (CBAM) signed by European Union (EU)
Carbon Border Adjustment Mechanism (CBAM): The CBAM is a policy tool proposed by the European Union (EU) to address carbon leakage and promote fair competition. It aims to place a carbon price on imported goods based on their embedded carbon emissions, similar to the emissions cost that EU producers face under the EU Emissions Trading System (EU ETS). Carbon Border Adjustment Mechanism (CBAM) is also important UPSC Prelims Exam and UPSC Mains Exam (GS Paper 2- International Relations; GS Paper 3- Environment and Ecology).
Recently, the co-legislators at the European Commission signed the Carbon Border Adjustment Mechanism (CBAM). Carbon Border Adjustment Mechanism (CBAM) tool has been hailed as a significant milestone in establishing an equitable cost for the carbon emissions associated with the production of carbon-intensive goods entering the European Union. Its purpose is to incentivize cleaner industrial practices not only within the EU but also in countries outside the EU.
The Carbon Border Adjustment Mechanism (CBAM) pertains to the scenario where EU manufacturers relocate carbon-intensive production to countries that have less stringent climate policies, leading to the substitution of EU-manufactured goods with imports that have a higher carbon footprint. Its primary objective is to avert ‘carbon leakage’.
The primary objective is to prevent carbon leakage and simultaneously promote the adoption of environmentally friendly manufacturing practices by producers in non-EU countries.
Initially, the Carbon Border Adjustment Mechanism (CBAM) will be applicable to specific goods and precursors that have a high carbon footprint and are at risk of carbon leakage. This includes sectors such as cement, iron and steel, aluminium, fertilizers, electricity, and hydrogen.
Between 2019 and 2021, India’s exports in the five sectors affected by the Carbon Border Adjustment Mechanism (CBAM) represented less than 2% of its total exports to the European Union (EU). While the immediate impact of the regulation may seem limited, its long-term consequences could be severe for several reasons.
During the inaugural EU-India Trade and Technology Council, it was announced in a joint statement that both sides have agreed to enhance their engagement on carbon border measures, indicating a willingness to intensify discussions on this topic.
India Plans Uniform Carbon Trading Market
The CBAM is a policy tool proposed by the European Union (EU) to address carbon leakage and promote fair competition. It aims to place a carbon price on imported goods based on their embedded carbon emissions, similar to the emissions cost that EU producers face under the EU Emissions Trading System (EU ETS).
The CBAM is introduced to prevent carbon leakage, which occurs when industries relocate to regions with less stringent climate policies, leading to increased global emissions. The CBAM ensures that imported goods face a similar carbon price as EU-produced goods, promoting a level playing field and encouraging greener manufacturing practices globally.
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