Carbon Border Adjustment Mechanism
#GS-02 International Relations, #GS-03 Climate Change
Carbon Border Adjustment Mechanism:
- Carbon border adjustments, also referred to as “carbon border adjustment mechanisms” (CBAM), are an emerging set of trade policy tools that aim to prevent carbon-intensive economic activity from moving out of jurisdictions with relatively stringent climate policies and into those with relatively less stringent policies.
- Carbon Border Adjustment Mechanism was proposed by the European Union to tax products such as cement and steel, which are extremely carbon intensive, with effect from 2026.
- Carbon leakage occurs when there is an increase in greenhouse gas emissions in one country as a result of an emissions reduction by a second country with a strict climate policy.
- BASIC is a grouping of four newly industrialized countries namely, Brazil, South Africa, India and China.
- The BASIC group was formed as the result of an agreement signed by the four countries on November 28, 2009.
Advantages of Carbon Border Adjustment Mechanism:
- Border adjustments have the potential to increase the environmental effectiveness of climate policies, by averting shifts in economic activity that could lead to higher total greenhouse emissions.
- They are also seen as a way of protecting industrial competitiveness by reducing the incentive for businesses to move production abroad.
- While no significant carbon leakage has occurred to date, it remains a concern of policymakers for some emissions-intensive industries in countries with ambitious climate policies.
Concerns about Carbon Border Adjustment Mechanism:
- Some observers have raised concerns that carbon border adjustments could amount to disguised protectionism, and they involve unsettled issues of trade policy that, if not carefully designed, could provoke disputes in the World Trade Organization (WTO).
- Carbon border adjustments are also sometimes criticized as incompatible with the UNFCCC, particularly Article 3.5, which forbids measures that constitute “arbitrary or unjustifiable discrimination” or serve as a “disguised restriction on international trade”.
- International observers have also expressed concerns that border adjustments can stifle multilateral climate efforts through the UNFCCC.